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

According to news from Zhitong Finance APP, Citi has downgraded Adobe (ADBE.US) stock rating from "Hold" to "Sell", lowering the price target from $250 to $207, citing downside risks to growth expectations after fiscal year 2027 and ongoing changes in the company's management.

Citi analyst Tyler Radke said in an investor report released Wednesday: "As new CEO Anil Chakravarthy takes office, there are still several key leadership positions vacant, including CFO and head of the Digital Media business. Given these management vacancies and the evolving go-to-market (GTM) strategy of the Creative business, we anticipate Adobe may provide a weaker outlook for fiscal year 2027 when it reports Q4 fiscal 2026 results in early December. A 'hard-landing reset' may put short-term pressure on the stock price but will also give the company time to rebuild its management team, refine its strategy, and establish a more attainable performance benchmark, laying the foundation for accelerated growth thereafter."

Adobe plans to announce its Q4 fiscal 2026 results after the US market close on December 9. Market consensus expectations are for adjusted earnings per share of $6.33 and revenue of $6.83 billion for the quarter. For the same period last year, Adobe reported adjusted earnings per share of $5.50 and revenue of $6.19 billion.

Tyler Radke pointed out: "Adobe's increasing focus on monthly active user (MAU) growth may put pressure on annual recurring revenue (ARR) totals in fiscal years 2027 and 2028, as the company continues to shift away from price-driven monetization and channels new users toward lower average selling price (ASP) products."

He added: "We expect the impact to be most pronounced in the core Creative business, while a sluggish demand environment in small and medium-sized businesses (SMB) and increasing competition from web-based and native AI tools will further add to this pressure." Citi has lowered its forecasts for incremental annual recurring revenue in Adobe's full fiscal years 2027 and 2028 by $470 million and $500 million, respectively, to $1.5 billion and $1.45 billion.

Concerns about AI disruption have been a core theme for software investors this year. In early 2026, the software sector plunged as AI-native companies such as OpenAI and Anthropic continued to launch new products. While sector sentiment has largely recovered as investors see certain software as difficult to replace, Adobe remains a clear exception.

So far this year, Adobe's share price is down nearly 29%, while the iShares Expanded Tech-Software Sector ETF has fallen only 2% in the same period. This ETF is widely viewed as a proxy indicator for the software sector. Adobe's stock may decline more than 20% for a third consecutive year, and this sustained sell-off reflects the market viewing it as a classic case of AI disruption.

Investors are concerned that users may abandon Photoshop subscriptions in favor of tools from companies like OpenAI or Anthropic, generating images through prompts. Although Adobe offers its own AI features, the market fears that AI competition will suppress its pricing power and drag on margins.

Thus, as market worries increase regarding Adobe's ability to remain competitive in the AI era, analyst opinion towards the creative software giant has reached historic lows. Before Citi, Wells Fargo and HSBC downgraded Adobe ratings last month. Specifically, Wells Fargo downgraded Adobe two notches from "Overweight" to "Underweight" and cut its 12-month price target from $270 to $225. HSBC downgraded Adobe from "Buy" to "Hold", and lowered its price target from $310 to $267, calling Adobe a "real candidate for AI-driven disruption."