Read Why Adobe, Cloudflare Shares Fell On Tuesday

Adobe Inc's ADBE stock faced its second-worst day of the year on December 14, and shares of other cloud software companies plunged after JPMorgan analysts issued a series of downgrades, citing high valuations, CNBC reports.

• The cloud software companies included Cloudflare Inc NET and Zscaler Inc ZS.
• "The reasons for the downgrades include a combination of limited upside to our price targets, valuation in light of risk that interest rates rise in 2022, adjusting discount rates for the current rate environment, and reevaluating reasonable cash flow expectations."
• A CNBC Fed Survey sees the central bank raising rates three times in the next two years, starting in June 2022.
• "With rates climbing, this adds risk to higher multiple software stocks trading over 20 times revenue," JPMorgan wrote.
• "Adobe has been one of the better performers across our coverage in 2021, especially in the large-cap category, as improvement in the economic environment coming out of the pandemic motivated companies to purchase digital marketing/advertising solutions to generate top-line revenue growth."
• For Zscaler, JPMorgan said, "We appear much closer to a rate tightening cycle as the Fed looks to catch up with inflation, and we do expect that will have an impact on our highest valuation names, especially as growth begins to normalize."
• For Cloudflare, JPMorgan said the company could be the largest generator of revenue in its coverage universe within 10 to 15 years because it's positioning itself to be the "fourth cloud" after Amazon.com Inc AMZN, Microsoft Corp MSFT and Alphabet Inc GOOG GOOGL Google.
• Datadog Inc DDOG shares dropped as JPMorgan said that lowering its rating on the data analytics and monitoring company is "purely a valuation call."
• Price Action: ADBE shares closed lower by 6.6% at $614.86 on Tuesday, while NET shares closed lower by 8.98% at $132.00 and ZS lower by 7.84% at $284.34.