Sometimes, the market’s collective mind can shift in counterintuitive ways. This seems to be the case with Adobe (ADBE), which has been beaten down by Wall Street’s skepticism for the better part of the past five years despite consistently delivering excellent results. Its shares have now drifted back to the lows of April 2020, and you’d think the world had turned upside down all over again. One look at the headlines explains the anxiety. They are all about fresh competition, the looming promise (or threat) of AI, and a less-than-explosive Q2 outlook. But is this really the end of Adobe’s dominant run, or just another chapter in its long history of turning challenges into catalysts?
Competition and AI Jitters
Competition is the first big worry here, and it’s pretty obvious why. Canva and Figma have snagged millions of users, some who once counted on Adobe, by offering simpler interfaces and free or super-cheap plans. Canva’s drag-and-drop style has really hooked the small-business crowd, while Figma has made UI/UX design collaboration mainstream. Adobe’s attempt to buy Figma in 2023 was thwarted by regulators, ensuring the rivalry remains fierce.
Then there’s the AI wave. You have probably already seen various demos of exciting projects like DALL·E and MidJourney that produce high-quality visuals from mere text prompts. Runway ML is driving AI-enabled video editing, proving that generative AI can tackle complex creative tasks once reserved for power tools like Adobe Premiere. If these platforms keep evolving, the bears argue, why would anyone pay for a Creative Cloud subscription?
Add to these concerns Adobe’s recent guidance miss for Q2, with projected revenue of $5.77 billion to $5.82 billion coming in marginally under the analyst consensus of $5.8 billion, and it’s no wonder some shareholders are second-guessing their positions. And who would argue against them? When you stack competition, AI uncertainty, and cautious revenue forecasts, it’s easy to form a dim view of the road ahead.
But There’s Only Half the Story
On closer inspection, however, Adobe’s actual performance remains enviable. Investor sentiment on the stock appears to have reached rock-bottom. Yet, the company posted record revenues of $5.71 billion in its latest report, up 10% year over year (at an even stronger 11% when adjusted for FX swings). Its Digital Media segment, including Creative Cloud and Document Cloud, expanded 11% to $4.23 billion. Surely, these aren’t numbers you’d expect from a business on the brink of collapse.
Honestly, I’d say AI is more of a boost than a threat for Adobe. Their Firefly platform, now baked into Photoshop, Illustrator, and Premiere Pro, shows they can totally blend generative AI into their usual workflows. And if you’re a pro looking for serious creative control, standalone tools like Firefly Web and Firefly Pro give you all the AI power without giving up that creative control. I want to stress “creative control” here, as none of the exciting AI tools we have seen over time have shown they gave creators full control over their work.
Meanwhile, Adobe’s Digital Experience division continues to attract major enterprises. In Adobe’s report last week, revenues climbed 10% to $1.41 billion, showing that big names like IBM (IBM), AT&T (T), and PepsiCo (PEP) remain in Adobe’s corner. In an era when integrated platforms for content, marketing, and analytics are increasingly valued, it makes total sense that “One Adobe” resonates with companies hungry for efficiency, consistency, and data collection.
Putting Slowdown Fears into Context
As I mentioned, Adobe’s continued growth disproves ongoing market sentiment. One could argue that Adobe, however, missed Wall Street’s estimates, and that management’s target of roughly 9% revenue growth for fiscal 2025 marks the first time in over a decade that Adobe anticipates single-digit top-line growth. Still, this is hardly a concern in the proper context, especially considering that currency swings alone reduced Adobe’s Digital Media ARR by $117 million from 2023 to 2024. The dollar remains quite strong, meaning that the reason management guides for high-single-digit growth is due to FX. If it were not for a strong dollar, revenue growth would once again come above 10%.
Importantly, I feel like both retail and institutional investors are actively ignoring Adobe’s capacity to consistently grow earnings year after year against all headwinds. To add some context here, analysts expect EPS to hit $20.41 in 2025, an 11% uptick YoY, despite all the market concerns and heavy AI investments. In other words, Adobe seems set to keep delivering double-digit earnings growth. Yet the stock’s sitting at about 19.3 times this year’s EPS, which honestly strikes me as way too low, especially given its dominant spot in the creative software world and, by now, a proven moat. To me, this screams opportunity for anyone who’s willing to tune out the short-term noise.
Is Adobe Stock a Buy or Sell?
Even with what seems to be all-time-low sentiment for the stock, Wall Street analysts still seem relatively optimistic on Adobe from its current price levels. Specifically, ADBE stock now has a Moderate Buy rating among 26 Wall Street analysts who cover the company. This is based on 16 Buy, nine Hold, and one Sell recommendations assigned in the past three months. The average price target for ADBE stock of $520.21 suggests an upside potential of 31.79%.
Summing Up
To sum my thoughts up, Adobe’s prolonged decline to 2020-era levels might make for catchy headlines, but in no way does it erase the company’s strengths. Among these strengths, I would definitely highlight its consistent growth, top-tier creative and marketing tools portfolio, and management’s (thus far) productive focus on AI innovation. Indeed, competitive pressures and macro tensions are present, but every corner of tech is experiencing similar headwinds today. Therefore, if you believe in Adobe’s knack for transforming challenges into fresh growth engines, then now, at these price levels, could be the perfect time to lean in rather than shy away.
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