The risk of a “hard landing reset” looms ahead! Citi downgrades Adobe (ADBE.US) to “sell”

The Zhitong Finance App learned that Citi downgraded the stock rating of Adobe (ADBE.US) from “hold” to “sell” and the target price from $250 to $207. The reason is that after entering the 2027 fiscal year, the company's performance growth expectations are facing downside risks, and management is also changing.

Citibank analyst Tyler Radke said in an investor report released on Wednesday: “As the new CEO, Anil Chakravarthy, takes office, there are still several key leadership vacancies in the company, including the chief financial officer and head of the digital media business. Considering these management vacancies and the evolving marketing (GTM) strategy of Creative's business, we anticipate that Adobe may give a weak outlook for FY2027 when it announces the fourth quarter results of FY2026 in early December. A 'hard landing reset' may put pressure on stock prices in the short term, but it will also provide time for the company to rebuild management teams, improve strategies, and establish a more realistic performance benchmark, thus laying the foundation for subsequent accelerated growth.”

Adobe plans to announce results for the fourth quarter of the 2026 fiscal year after the US stock market closes on December 9. Market consensus estimates show that the company's adjusted earnings per share for the quarter were $6.33 billion, with revenue of $6.83 billion. For the same period last year, Adobe reported adjusted earnings per share of $5.50 and revenue of $6.19 billion.

Tyler Radke notes, “Adobe is increasingly focusing on monthly active user (MAU) growth, which may put pressure on total annual recurring revenue (ARR) in the 2027 and 2028 fiscal years, as the company will continue to abandon price-driven monetization methods and steer new users to products with lower average sales prices (ASP).”

He added, “We expect the core Creative business to be most significantly impacted, while the weak demand environment for small and medium enterprises (SMB) and competition from web-based tools and native AI tools will further increase this pressure.” Citi lowered Adobe's new annual recurring revenue forecasts for the full 2027 and 2028 fiscal years by $470 million and $500 million, respectively, to $1.5 billion and $1.45 billion.

Concerns about AI disruption are a core topic of concern for software investors this year. At the beginning of 2026, the software sector plummeted as AI native companies such as OpenAI and Anthropic continued to launch new products. Sector sentiment has largely recovered as investors think some software is difficult to replace, but Adobe is still the obvious exception.

Since this year, Adobe's stock price has fallen by nearly 29%, while the iShares Extended Technology Software ETF fell only 2% during the same period. The ETF is widely regarded as a proxy indicator for the software sector. Adobe's stock price is likely to fall by more than 20% for the third year in a row. This long-term sell-off reflects what the market sees as a typical example of AI disruption.

Investors are concerned that users may abandon their Photoshop subscriptions and instead use tools from companies such as OpenAI or Anthropic to generate images through prompts. Although Adobe also provides its own AI capabilities, the market fears that AI competition will suppress its pricing power and drag down profit margins.

As a result, as the market increasingly worried that Adobe would be unable to maintain competitiveness in the AI era, analysts' views on this creative software giant have fallen to a historical freezing point. Prior to Citi, Wells Fargo Securities and HSBC downgraded Adobe ratings last month. Specifically, Wells Fargo Securities downgraded Adobe's rating by two levels in a row, from “increase holdings” to “reduced holdings,” and lowered its target price for 12 months from $270 to $225. HSBC, on the other hand, downgraded Adobe's rating from “buy” to “hold” and the target price from $310 to $267, saying Adobe is a “realistic candidate for AI-led disruption.”