Adobe Inc (NASDAQ:ADBE) stock rose 1.64% (As on June 12, 11:24:41 AM UTC-4, Source: Google Finance) after Melius Research downgraded the company to Hold from Buy with a $510 price target. The firm believes the rise of AI-driven productivity threatens the long-relied-upon “seat model” for software-as-a-service companies, and says it has seen a “plethora of new competitors” to Adobe “get stood up much faster than we could have imagined even a year ago.” The firm believes the software industry, including giants like Adobe, may be facing a period of disruption similar to the shift from on-premise hardware to cloud computing.
Melius Research argues that AI could fundamentally change how software is built and delivered. They point to factors like the rise of cloud platforms and AI coding tools that can automate tasks and potentially make software creation faster and cheaper. This could empower smaller, AI-focused competitors to emerge and threaten established players like Adobe, according to the firm.
The note also highlights the potential impact of AI on traditional business models. The current seat pricing model, where customers pay per user, could be challenged by AI-driven solutions focused on outcomes or functionality. This transition could further pressure established companies, they add. While acknowledging Adobe’s strong brand and existing customer base, Melius Research believes the company may struggle to adapt to the changing landscape.
They point to new AI-powered competitors entering the market and the potential for existing clients to optimize workflows using AI, reducing their reliance on traditional software licenses.
Given these concerns, Melius Research expects Adobe’s stock to remain rangebound for some time. The firm believes it is beneficial to wait and see how Adobe adapts to the evolving software landscape before considering investment. The report also highlights the potential for AI to disrupt traditional business models within the SaaS sector. As companies have been consistently raising prices, the analyst expresses skepticism about their ability to charge extra for AI amidst inflation and shifting priorities. Additionally, the rise of AI-driven productivity tools may undermine the traditional “seat model” and necessitate a transition towards outcome-based business models.
The analyst also anticipates that AI will challenge established database paradigms, particularly as unstructured data becomes more critical and manageable. This could have repercussions for companies like Snowflake and Oracle, as well as ongoing impacts on Salesforce and Workday, suggesting that the effects of AI on enterprise software may be widespread and sustained.