Goldman Sachs Sounds the Alarm on Adobe Stock, Pointing at ‘Uncertainty until Adobe’s Next CEO Is Announced’

Adobe (ADBE) shares ended Tuesday’s session at $254.20, up 0.93% as the market tried to recover from a very difficult week. Despite this small bounce, the mood around the company remains tense. Goldman Sachs (GS) analyst Gabriela Borges recently lowered her price target for the stock from $290 down to $220, keeping a firm Sell rating. She noted that the recent stock decline likely reflects “uncertainty until Adobe’s next CEO is announced and potential for a shift in strategy.”

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CEO Departure Creates a Leadership Vacuum

The biggest shock to investors was the news that CEO Shantanu Narayen is stepping down after 18 years. This transition is happening exactly when the “AI wars” are heating up. Gabriela Borges points out that this move introduces significant risk for the firm. She stated that the stock’s drop in after-hours trading was a sign of “uncertainty until Adobe’s next CEO is announced.” Analysts are concerned that a leadership vacuum during a critical time could make it harder for Adobe to compete with fast-moving AI startups.

Generative AI Erodes the Low-End Market

Adobe’s photo business is already feeling the sting of new technology. Because people can now use AI to make their own images for free, they are not buying as many professional photos. Goldman Sachs highlighted that the “CEO transition introduces too much uncertainty while AI competition continues to erode the low end of the market.” The bank fears that if AI makes high-quality design too easy, Adobe’s expensive software might become less necessary for many casual users.

Stretched Valuations for Adobe Face a Reality Check

Even though the stock price has fallen, Goldman argues it is still not a bargain yet. When Gabriela Borges took over coverage of the stock, she applied a “50% discount to peers” for Adobe’s valuation. The bank noted that Adobe offers “lower revenue growth of 10% NTM compared to peers at 11% and lower EPS growth of 10% NTM versus peers at 18%.” This makes the company look less attractive than other software firms that are growing much faster.

Is Adobe Stock a Good Buy?

Turning to Wall Street, analysts have a Hold consensus rating on ADBE stock based on nine Buys, 13 Holds, and three Sells assigned in the past three months, as indicated by the graphic below. Furthermore, the average ADBE price target of $322.05 per share implies 26.7% upside potential.

See more ADBE analyst ratings

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