“This quarter will be decisive” – Adobe investors are tired of waiting for a return on investment in AI tools

Investors are looking to Adobe for evidence of monetization of artificial intelligence (AI)-based services and successful competition with other platforms. According to Bloomberg, the company’s shares are showing weak performance amid growing competition in the field of AI. They’re down 8.3% this year, while the broad index tracking the software sector is up more than 30%.

Image source: adobe.com

After disappointing guidance last quarter, Wall Street’s attention is focused on the company’s results after the close on Wednesday. Investors are waiting for Adobe to show how it plans to make money from its AI services and whether it can withstand competition from generative AI platforms such as OpenAI, Google Gemini and others.

«This quarter will be critical as it remains unclear whether Adobe will be able to monetize AI and take market share from competitors,” said Jamie Meyers, senior analyst at Laffer Tengler Investments. While Adobe is one of their investment firm’s top 12 ideas, there is uncertainty about its AI strategy, he said. While Adobe is actively integrating its Firefly AI technology into products like Photoshop and Illustrator, the launch of AI tools for working with video has been much slower than competitors such as OpenAI with its Sora service.

Previously, Adobe management stated that the company’s strategy is not based on direct monetization of AI tools, but on offering AI as built-in functions in its software products. However, this approach is beginning to cause dissatisfaction among investors. “Yes, the company has made significant investments, but we are tired of not seeing a return on these investments. If things continue like this, Adobe will not be able to shake off the impression that it is falling behind for a long time,” Myers added.

Analysts expect the company to show fourth-quarter net income growth of more than 13% and revenue growth of almost 10%. However, the key indicator, net new recurring income, is expected to decline by 3.1%, which would be the first drop in a year. Some weakness is also predicted in the Creative Cloud segment.

In turn, financial conglomerate Citigroup believes that Adobe’s core business is facing revenue leakage amid macroeconomic problems and growing competition. “The stock is likely to remain in a tight range as Adobe focuses on attracting users to its AI tools rather than monetizing them,” Tyler Radke wrote in a research note.

It is worth noting that with the advent of AI technologies, other companies also have to overcome significant milestones. For example, Salesforce was able to demonstrate the success of its AI strategy, which caused its stock to rise, while Oracle fell short of investor expectations despite positive industry trends. Some experts see Adobe’s situation as analogous to Salesforce. “Salesforce has successfully implemented AI products that provide value to customers. Adobe also has useful AI solutions. If their pricing strategy produces growth and investors see positive results, the stock will be rewarded,” said Alonso Munoz, chief investment officer at Hamilton Capital Partners.

Adobe’s fourth-quarter report will be the moment of truth: If the company can convince investors of its growth prospects, its stock is well positioned to recover. Otherwise, the pressure on the company will only increase.