Adobe shares jump 6% on 'AI-influenced ARR' topping $5B, but Morgan Stanley downgrades on competitive concerns
Sep 25, 2025
Key Points
- Adobe stock jumped 6% on reporting $5 billion in AI-influenced ARR, a metric created by reclassifying existing SaaS revenue into a new AI bucket rather than genuine new product adoption.
- Morgan Stanley downgraded Adobe to equal weight and cut its price target from $520 to $450, citing the company's failure to gain meaningful traction with generative AI tools despite having them in its product suite.
- Adobe has made only one acquisition in 24 months and avoided high-profile AI talent deals while competitors aggressively acquire creative tools, leaving the company unable to attract frontier AI engineers.
Summary
Adobe's stock rose 6% after reporting AI-influenced ARR topping $5 billion, but the metric reflects accounting reclassification rather than new growth. The company created a new line item called "AI-influenced ARR" by moving existing SaaS revenue into an AI bucket, similar to how companies once deployed "community-adjusted EBITDA." The underlying adoption remains unclear.
Adobe's actual generative AI products exist. Image credits, rotoscoping, green screen removal, and subtitle generation are all real features. The company launched a generative image generator roughly two years ago, shortly after DALL-E, but failed to gain meaningful traction. Distribution within Adobe's own ecosystem should theoretically drive adoption, yet adoption hasn't materialized at scale.
Morgan Stanley downgraded Adobe to equal weight from overweight, cutting its price target from $520 to $450. The bank flagged competitive AI pressures and noted that Adobe's generative AI push has not yet borne fruit. Adobe lacks the distribution muscle or aggressive deal-making posture that rivals like OpenAI have demonstrated.
Adobe's strategic gaps are concrete. The company imposed a narrow training constraint, using only licensed stock images and refusing to train on copyrighted material. Competitors chose fair-use arguments and are willing to litigate. More damaging, Adobe has been largely absent from M&A during a period when generative AI tools are proliferating. The company made one acquisition in 24 months, Rephrase AI, an Indian AI video startup, when it should have been aggressively acquiring promising creative tools before competitors did. Adobe notably skipped the Windsurf bidding process and other high-profile acquisitions.
The talent problem compounds the product problem. Early-career engineers excited about AI are not seeking roles at Adobe. Without access to people building at the frontier, a company won't build frontier products. For Adobe, that matters when its competitive moat depends on creative tools that actually excite users.
Adobe is talking about AI revenue while competitors are shipping products users want. Rebranding existing revenue masks the gap.