Adobe shares fall as weak earnings forecast raises concerns about delayed AI gains

(Reuters) – Adobe shares fell nearly 10% on Friday after the Photoshop maker’s disappointing quarterly profit forecast sparked concerns that profits from its artificial intelligence investments would be delayed.

As one of the world’s largest software companies, Adobe is investing heavily in image- and video-generating artificial intelligence (AI) technology to maintain its leadership position in the design software industry, despite growing competition from well-funded startups such as Stability AI and Midjourney.

The company on Thursday estimated fourth-quarter revenue at $5.50 billion to $5.55 billion, while analysts polled by LSEG had expected $5.61 billion.

Excluding current items, quarterly profit is expected to be between $4.63 and $4.68 per share, compared with the consensus estimate of $4.67 per share.

If current losses continue, Adobe will lose more than $25 billion in market value.

The company’s shares have fallen nearly 2% this year after rising more than 77% in 2023.

Despite fourth-quarter revenue forecasting below estimates, Adobe said it expects to beat its annual net new recurring revenue (NNARR) expectations, indicating that Adobe’s subscription volume remains strong.

“Adobe is on track to deliver year-over-year Creative Cloud NNARR growth in the fourth quarter and is one of the few software companies to see new bookings grow,” JP Morgan analysts said in a note.

In June, the company said it expected strong growth in the second half of the year, but the weak forecast indicated continued pressure from buyers.

“We believe there is no clear near-term catalyst for the stock unless Adobe somehow manages to convince investors to expect stronger growth next year,” Bernstein analysts said.

(Reporting by Zaheer Kachwala in Bengaluru; Editing by Tasim Zahid and Shreya Biswas)