The market is pricing Adobe as a company at its end. What if it's wrong?
The bank cut its rating on Adobe because of a free Photoshop clone that even its creator doesn’t consider finished. Yet the stock trades at nine times earnings. Opportunity, or a trap that patient investors fall into?
Key points
HSBC cut its rating on Adobe because of a free Photoshop clone that its own creator says is 45 percent complete
The same analyst advises not to download the program and lowers Adobe's revenue estimates by only one percent
The stock trades at nine times earnings, a level the market assigns to regional banks and tobacco companies
Over 100 million people use Adobe products for free every month, and by no means all of them pay
The stock's fate won't be decided by a clone from GitHub, but by a single number the company will publish in December
Downgrade because of a program that is 45 percent complete
On October 13, HSBC cut its rating on Adobe $ADBE from Buy to Hold and its target price from $310 to $267. The reason sounds like a movie script: developer Brandon Thomas, with the help of an AI model, cloned seven Adobe applications including Photoshop, Illustrator, and Premiere, published them free on GitHub under the name ArtCraft, and promised "100% feature parity within a month". Within a few days, the project collected over 40 thousand stars and tech media wrote that "software is over".
But when the first users began reporting that even basic functions didn’t work, the author backtracked. His own project overview now states that the Photoshop clone is roughly 45 percent "ready for real work".
Even more interesting is what HSBC analyst Stephen Bersey himself says about the clone. He recommends users not to download the program due to security risks and lowers Adobe's revenue estimates by only about 1 percent, and earnings by 1 to 2 percent. The same analyst had upgraded the stock to Buy as recently as July, saying the panic around AI was overblown. The market reacted tepidly: on the day of the downgrade, the stock fell less than a percent and on October 14 it closed at $240.68, up 1.86 percent.
The point of the first chapter is simple: the market reacted to the headline, not the numbers. And that is exactly why it makes sense to look at what the numbers actually say.