(Reuters) - Adobe's shares fell 12% on Friday as the company's lackluster quarterly forecast raised fears about strong competition and disappointed investors who were hoping for a boost from generative AI integrations.

Like other software firms Microsoft ( MSFT ) and Alphabet-owned Google, Adobe is being watched closely by Wall Street for its ability to make money from AI features that it has rolled out across its creative suite including Photoshop.

The company also faces competition from artificial-intelligence startups such as Stability AI and Midjourney that are looking to challenge Adobe's years-long grip of the graphics industry.

RBC Capital Markets analysts said the underwhelming second-quarter forecast from the Photoshop maker was sparking concerns among investors about the "GenAI upside."

Adobe on Thursday forecast about $440 million in net new annual recurring revenue for the digital media segment, which houses its cloud products for documents and creative applications. Last year, the company had reported $470 million for the unit.

Its overall revenue forecast for the quarter was also below estimates, with CEO Shantanu Narayen saying that "expectations were perhaps a little higher ... in terms of what we would guide for Q2".

If the premarket losses hold, the company will shed more than $30 billion of the $258.2 billion in market value it held as of Thursday. Its shares have fallen about 4% this year, after jumping 77% in 2023.

"Mixed messages are hard to interpret," Piper Sandler analysts said, adding Adobe was still in the early stages of monetizing AI across its main platforms.

Adobe also announced a $25 billion stock buyback on Thursday, months after shelving its $20 billion "take-private" deal for cloud-based designer platform Figma due to regulatory roadblocks.

Adobe's stock trades at 30.41 times its forward profit estimates, compared with 32.87 for Microsoft ( MSFT ) and 30.42 for Salesforce.