Is Adobe Really Getting Disrupted by AI, Or Should Investors Buy the Stock?
Key Points
Adobe turned in another solid quarter of revenue growth.
The company continues to dispel the notion that its business is getting disrupted by AI.
The stock is cheap; however, it needs to see a sentiment shift.
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Over the past year, Adobe's (NASDAQ: ADBE) stock price fell about 35% based, in part, on the narrative that the company's business is being disrupted by artificial intelligence (AI). However, the leader in creative software recently closed out its fiscal year, posting solid revenue growth and projecting good growth next fiscal year as well.
Let's take a close look at Adobe's results and guidance to see if the stock has what it takes to finally start to break out to the upside.
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Image source: Getty Images
Adobe is a consistent grower
Throughout its fiscal 2025, Adobe saw consistent 10% to 11% revenue growth quarter in and quarter out. If that is what AI disruption looks like, then I'm sure Adobe will take it. It also projected that its annual recurring revenue (ARR) will grow by 10.2% next year.
Meanwhile, the company has leaned into AI with its own AI model, Firefly, as well as providing access to third-party large language models (LLMs) from OpenAI, Alphabet, and others. It has also launched other AI-powered tools, such as Acrobat AI Assistant and marketing platform GenStudio. It noted that generative AI credit consumption has been soaring, increasing threefold quarter over quarter. This tends to lead to customers buying more credits or upgrading to higher software tiers.
Overall, Adobe saw its revenue climb 10% in fiscal 2025 to $6.19 billion. This was above its previous forecast for revenue of between $6.075 billion and $6.125 billion. Its adjusted earnings per share (EPS) jumped 14% to $5.50, ahead of its prior $5.35 to $5.40 outlook.
Among individual segments, digital media, which is home to both its Creative and Document Cloud businesses, saw revenue increase by 11% to $4.62 billion. Digital media ARR grew nearly 12% to $19.2 billion.
Revenue in the digital experience segment, which provides digital analytics and online marketing services, rose by 9% to $1.52 billion. Within the segment, digital experience subscription revenue climbed by 11% to $1.41 billion. Adobe GenStudio, which is used for performance marketing, continued to be a strong driver, with ARR growing 25% year over year.
Looking ahead, Adobe provided a fiscal 2026 outlook, as seen in the table below:
| Metric | FY 2026 Forecast |
|---|---|
| Revenue | $25.9 billion to $26.1 billion |
| Business professionals & consumers subscription revenue | $7.35 billion to $7.4 billion |
| Creative & marketing professionals subscription revenue | $17.75 billion to $19.9 billion |
| Total ARR growth | 10.2% |
| Adjusted earnings per share | $23.30 to $23.50 |
Data source: Adobe earnings releases. FY = fiscal year.
For its fiscal first quarter, meanwhile, it provided the following outlook:
| Metric | Fiscal Q1 Forecast |
|---|---|
| Revenue | $6.25 billion to $6.3 billion |
| Business professionals & consumers subscription revenue | $1.74 billion to $1.76 billion |
| Creative & marketing professionals subscription revenue | $4.3 billion to $4.33 billion |
| Adjusted earnings per share | $5.85 to $5.90 |
Data source: Adobe earnings releases.
Is it time to buy Adobe stock?
Adobe has been a consistent low double-digit revenue grower whose business just compounds year after year. There have been no signs that AI is disrupting its business, and while the technology hasn't accelerated its revenue growth, it has helped keep it steady.
Meanwhile, some aspects are growing quickly, such as with GenStudio. The company is looking to further push into AI-powered performance marketing with the recent announcement that it will acquire SemRush for $1.9 billion. It will look to integrate Semrush's SEO (search engine optimization) tools into its offering to help customers improve their brand visibility.
Turning to valuation, the stock currently trades at a forward price-to-earnings (P/E) ratio of 15 times fiscal year 2026 analyst estimates, which is pretty cheap for a software-as-a-service (SaaS) with strong gross margins (over 80%) that is growing its revenue and earnings at a nice clip. Overall, Adobe is a solid, earnings compounder trading at a reasonable price.
If the company just keeps doing what it's doing, it should eventually break the narrative that its business is getting disrupted by AI. Reframing the story, however, can take time, but one day the sentiment will start to shift, and the stock will rally. As such, patient investors can look to buy the stock around current levels.
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Geoffrey Seiler has positions in Alphabet. The Motley Fool has positions in and recommends Adobe and Alphabet. 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.
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