Adobe's 'AI influenced ARR' metric draws skepticism as Morgan Stanley downgrades the stock
Sep 26, 2025
Key Points
- Morgan Stanley downgrades Adobe to equal weight and cuts price target to $450 from $520, arguing the company is relabeling existing revenue as 'AI-influenced ARR' rather than demonstrating genuine AI-driven growth.
- Adobe's image generator, launched two years ago, has seen minimal adoption, and the company has acquired only one AI startup in the past 24 months, signaling a cautious approach amid fierce generative AI competition.
- Adobe's ethical constraint of training only on licensed stock images may have handicapped its products against competitors willing to absorb legal risk, while the company struggles to attract early-career AI talent.
Summary
Adobe reported AI-influenced ARR topping $5 billion, sending shares up 6%. Morgan Stanley immediately downgraded the stock to equal weight from overweight, cutting its price target from $520 to $450. The analyst firm cited concerns that Adobe's generative AI push has yet to deliver tangible results.
The metric itself drew skepticism. Adobe appears to have reclassified existing revenue lines into a new "AI influenced ARR" bucket to match investor appetite for AI stories. One analyst compared it to "community adjusted EBITDA" — flexible enough that any CEO can apply it to any business and claim AI value that may not actually exist.
Adobe shipped an image generator roughly two years ago, shortly after DALL-E launched, but adoption has been minimal. The company lacks the distribution leverage to push generative tools across its product suite the way competitors with tighter integration have managed. It acquired only one AI company in the past 24 months (Rephrase AI, an Indian video startup), a notably cautious posture given the flood of generative AI startups available.
Adobe's original pitch positioned it as the ethical play by training only on licensed stock images rather than copyrighted material. That constraint may have handicapped its products relative to competitors willing to absorb legal risk. The company hasn't attracted early-career AI talent excited about building generative products, and few ambitious engineers cite Adobe as a destination for that work.
Morgan Stanley's concern is straightforward. Adobe is a SaaS company trying to convince the market it's an AI company by relabeling revenue. The question isn't whether AI features exist—they do—but whether they are genuinely driving adoption, retention, or pricing power, or whether Adobe is simply reshuffling existing customer spend into a new category name.