Adobe Stock Gets a Downgrade. ‘AI Is Eating Software,’ Analyst Says.

Adobe stock has dropped 24% this year. (David Paul Morris/Bloomberg)

Adobe stock was downgraded by a Melius Research analyst, who is concerned about what artificial intelligence competition means for the creative software company.

Ben Reitzes downgraded shares of Adobe to Sell from Hold and cut his price target to $310 from $400 on Monday. He wrote in a research note that software stocks that have dropped this year, including Adobe, Salesforce, and Atlassian, are at risk to fall further as large technology companies are a threat to market share.

“The world is coming around to the reality that ‘AI is eating software,’” Reitzes wrote. He believes that as AI continues to evolve, software players are at risk of losing out to companies that create the infrastructure to power autonomous agents, or agents that execute software tasks automatically.

“It can get worse for SaaS [software as a service] players like Adobe, Salesforce, Workday etc. — and see value continuing to shift toward infrastructure winners like Microsoft and Oracle,” Reitzes said.

Adobe has been working on modernizing itself in the AI era. On top of AI photo tools in its Firefly platform, the company fully launched its Firefly Video Model in February and announced updates to its AI offerings at Adobe Summit in March. Adobe also announced price increases to its Creative Cloud platform in May.

Despite this, Reitzes believes competition is still a major concern.

“You’ve seen the rise of Figma, Canva, Runway and others who are taking market share as they become better capitalized. Also, AI has made it easier for big Clouds like Google (who have access to huge compute resources) to easily create image and video generation tools that literally blow you away (tools from OpenAI and Meta are impressive too),” Reitzes said.

Barron’s has reached out to Adobe for commnemt.

Shares were down 0.8% on Monday to $338.42. The stock has dropped 24% this year and 26% over the past 12 months.

Write to Angela Palumbo at angela.palumbo@dowjones.com