The biggest victim of Sora: Adobe?

Adobe swiftly embraced generative AI last year, making it one of the most outstanding stocks among large software companies. However, the challenges it faces recently indicate that the hype around AI technology is both an opportunity and a risk.

With OpenAI announcing the launch of the text-to-video tool Sora last month, Adobe faces intensified challenges. After all, the emergence of Sora means a significant reduction in the barrier to video creation, potentially disrupting existing video production tools.

Since the launch of Sora, Adobe's stock price has plummeted by nearly 10%, more than double the decline of software service companies in the S&P 500 index during the same period.

This decline evokes a familiar feeling. In the first few months of last year, Adobe's stock price remained low, partly due to concerns about competitive threats from early AI image creation tools like Dall-E. However, after Adobe first introduced its AI tool Firefly in March last year, the situation quickly turned around, with Adobe's stock price soaring by 77% in 2023.

Nevertheless, the market remains cautious about the potential impact of AI tools like Dall-E and Stable Diffusion. Analysts believe that current AI models are far from being able to generate perfect pixel content and still need to operate within ethical and legal frameworks to ensure fair compensation for creators. In addition, regarding OpenAI's Sora, although it has received positive reviews, UBS analyst Karl Keirstead believes that Sora is currently unlikely to replace traditional video creation tools or have a significant impact on Adobe's main products.

For Adobe, the short-term revenue growth from AI tools like Firefly may fall below investors' expectations. The company expects revenue growth of only 10% for the current fiscal year, similar to last year, failing to meet the market's expectations for greater growth from AI.

Nevertheless, Adobe remains optimistic about the future. David Wadhwani, President of Adobe's Digital Media, stated during the December earnings conference call that recent price adjustments to the company's products, including its AI tools, will be reflected in the company's financial reports in the second half of this year and beyond. Adobe typically maintains a conservative stance in its forecasts, and according to FactSet data, it has exceeded its median initial revenue forecast seven times in the past 10 years.