"Hard-landing reset" risk looms! Citi downgrades Adobe (ADBE.US) to "Sell"

Citi downgraded Adobe (ADBE.US) to "Sell" from "Hold" and cut its price target to $207 from $250, citing downside risks to the company's growth expectations as it enters fiscal 2027, along with ongoing management changes. "With new CEO Anil Chakravarthy at the helm, the company still has several key leadership positions vacant, including the CFO and the head of the Digital Media business," Citi analyst Tyler Radke said in an investor note published Wednesday. "Given these management vacancies and the evolving go-to-market (GTM) strategy for the Creative business, we expect Adobe may provide a weaker fiscal 2027 outlook when it reports fiscal fourth-quarter 2026 results in early December. A 'hard-landing reset' could pressure the stock in the near term, but it would also give the company time to rebuild its management team, refine its strategy and establish a more realistic performance baseline, laying the groundwork for subsequent accelerated growth." Adobe is scheduled to report fiscal fourth-quarter 2026 results after the U.S. market close on Dec. 9. The consensus expects adjusted earnings per share of $6.33 and revenue of $6.83 billion for the quarter. In the year-ago period, Adobe reported adjusted earnings per share of $5.50 and revenue of $6.19 billion. "Adobe's increasing emphasis on monthly active user (MAU) growth could pressure total annual recurring revenue (ARR) in fiscal 2027 and 2028, as the company continues to move away from price-increase-driven monetization and steers new users toward products with lower average selling prices (ASP)," Tyler Radke noted. "We expect the core Creative business to be hit hardest, with pressure further exacerbated by a soft small and medium-sized business (SMB) demand environment and competition from web-based tools and native AI tools," he added. Citi cut its net-new annual recurring revenue forecasts for 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 central theme for software investors this year. In early 2026, the software sector plunged as AI-native companies such as OpenAI and Anthropic continued to roll out new products. Sector sentiment has largely recovered as investors concluded that certain software is hard to replace, but Adobe remains a notable exception. Adobe shares have fallen nearly 29% this year, while the iShares Expanded Tech-Software Sector ETF, widely viewed as a proxy for the software sector, is down just 2% over the same period. Adobe's stock could fall more than 20% for a third consecutive year, a prolonged selloff that reflects the market treating it as a case study in AI disruption. Investors worry that users may abandon Photoshop subscriptions in favor of tools from companies such as OpenAI or Anthropic that generate images from prompts. While Adobe offers its own AI features, the market fears AI competition will curb its pricing power and weigh on margins. As a result, with growing concerns that Adobe will struggle to stay competitive in the AI era, analyst sentiment on the creative software giant has fallen to a historic low. Before Citi, Wells Fargo and HSBC downgraded Adobe last month. Specifically, Wells Fargo cut Adobe by two notches, to "Underweight" from "Overweight," and lowered its 12-month price target to $225 from $270. HSBC downgraded Adobe to "Hold" from "Buy" and cut its price target to $267 from $310, calling Adobe a "realistic candidate for AI-led disruption."