Adobe's Revenue Accelerates. Is It Time to Buy This Beaten-Down Software Stock?

Shares of creative software specialist Adobe (NASDAQ: ADBE) have been crushed recently. The stock has plummeted to roughly $274 as of this writing as investors fret over rising artificial intelligence (AI) competition and -- now -- the abrupt news of a major leadership transition.

But while the market dumps the stock, Adobe's underlying business is actually picking up momentum and generating record fiscal first-quarter cash. With the stock trading at a severe discount to its historical norms, is this a rare opportunity to buy a high-quality software franchise on the cheap?

Image source: Getty Images.

Revenue is accelerating

A closer look at Adobe's first-quarter results for fiscal 2026 shows a business defying the market's pessimistic narrative.

Total revenue for the quarter rose 12% year over year to a record $6.40 billion. Importantly, this marks a clear acceleration from the 10% top-line growth Adobe delivered in the fourth quarter of fiscal 2025. And the company's total subscription revenue grew even faster in fiscal Q1 than its overall revenue -- at a rate of 13%.

And the company's growth is also highly profitable.

Adobe generated record fiscal first-quarter operating cash flow of $2.96 billion. Additionally, its non-generally accepted accounting principles (non-GAAP) earnings per share came in at $6.06 -- up from $5.08 in the year-ago quarter.

"As we accelerate AI-powered capabilities across creativity, productivity and customer experience orchestration, Adobe is well positioned for continued profitable growth," said Adobe chief financial officer Dan Durn in the company's earnings release.

Even more encouraging is how Adobe is proving that AI is a catalyst rather than a headwind. Adobe CEO Shantanu Narayen noted that its AI-first annualized recurring revenue more than tripled year over year.

Navigating the CEO transition

Despite these strong numbers, the market remains fixated on uncertainty.

Specifically, the recent announcement that Narayen will step down after 18 years at the helm seems to be spooking some investors, judging by the stock's pullback in after-hours trading on Thursday. Wall Street hates uncertainty, and replacing a highly successful, long-tenured chief executive just as the company is entering a new AI-first era naturally introduces execution risk as the company searches for a successor.

But Adobe's board isn't sitting on its hands amid the stock's recent pullback. The company is using the sell-off to aggressively shrink its share count.

The company repurchased an incredible 8.1 million of its shares during fiscal Q1 -- up from 7.2 million in fiscal Q4.

A dirt cheap valuation

This brings us to the most compelling part of the bull case: the tech stock's price tag.

As of this writing, Adobe trades at a forward price-to-earnings ratio of about 15. For a company with Adobe's market dominance, massive cash generation, and accelerating top-line growth, a multiple like this is arguably dirt cheap. For context, Adobe has historically traded at a price-to-earnings ratio well above 30.

At its current valuation, the market is essentially pricing in a worst-case scenario. Investors are assuming that AI will permanently impair Adobe's pricing power and that the upcoming CEO transition will derail the company's operational focus -- and these pessimistic assumptions are occurring at a time that Adobe's business is accelerating, fueled by a tripling of AI-first annual recurring revenue.

Simply put, the business and stock are doing two very different things. The business is executing, and the cash generation remains immense, even as shares plummet. A valuation like this, even as Adobe continues to deliver steady, double-digit growth, is arguably leaving the stock trading at a discount.

So, is the stock a buy? I think so.

Yes, a CEO transition introduces some near-term noise, and the software landscape remains intensely competitive. But risks seem largely priced in.

With revenue growth accelerating, AI-driven products gaining traction, and management aggressively repurchasing shares at a discount, I believe the risk-reward setup here is skewed in favor of long-term investors.

Daniel Sparks and his clients no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Adobe. The Motley Fool recommends the following options: long January 2028 $330 calls on Adobe and short January 2028 $340 calls on Adobe. The Motley Fool has a disclosure policy.