HSBC: Market overvaluing the impact of AI design tools, raises Adobe (ADBE.US) to "buy" with a target price of $308.

HSBC raised its rating on Adobe (ADBE.US) from "Neutral" to "Buy" on Wednesday, and raised its target price from $282 to $308, citing limited disruptive effects of artificial intelligence on the company's business. Boosted by this news, Adobe's stock price rose about 2% in pre-market trading on Thursday. Led by analyst Stephen Bersey, the HSBC team pointed out that Adobe's second-quarter revenue increased by 12.7% year-on-year, and the company has given guidance for an 11.8% annual revenue growth for the fiscal year 2026. With the support of the above data, they have not observed any substantial impact from AI-driven competitors. The analysts stated in their report, "Although AI design tools are among the earliest mainstream AI applications on the market, concerns have always existed that such tools would replace traditional software products like Adobe. However, Adobe has maintained strong revenue growth." They believe that the "stickiness" of Adobe's platform has been validated - partly due to users' familiarity with existing workflows, and also because Adobe has deeply embedded new AI features (including self-developed and third-party tools) into the platform. "Therefore, we believe the market has overestimated the negative impact of AI design tools, and the risk-return ratio is currently leaning towards the favorable side, with continued strong performance in the near term." The analysts further pointed out that Adobe's second-quarter total remaining performance obligation (RPO) and current remaining performance obligation (cRPO) both increased by 13.1% year-on-year. After experiencing explosive growth following the outbreak in the 2021 fiscal year, Adobe's revenue and cRPO growth rates have stabilized at low double-digit compound annual growth rate (CAGR) levels, with no signs of impact from AI so far. The analysts added, "Adobe is monetizing AI, with AI-related revenue growing three times year-on-year, but it still only accounts for around 2% of second-quarter revenue in fiscal year 2026. Ironically, even within Adobe's existing user base, the transition to new AI features has not replaced users' normal work patterns."