1 Software Stock I'd Actually Consider Buying Amid This Sell-Off

Many of the market's favorite software stocks have suffered steep declines so far in 2026. As artificial intelligence (AI) evolves rapidly, investors are becoming increasingly worried that new generative tools will disrupt established software-as-a-service business models.

This fear has weighed heavily on shares of Adobe (NASDAQ: ADBE). The creative software specialist has seen its stock price plummet from a 52-week high of nearly $423 down to about $241 as of this writing. Adding to the market's anxiety, the company recently announced that longtime CEO Shantanu Narayen will be stepping down.

But sometimes the market overreacts to uncertainty. While the broader software stock sell-off could certainly get worse, there is a certain price at which a high-quality business simply becomes too attractive to pass up.

I think Adobe has hit that level.

Image source: Getty Images.

AI looks more like a catalyst than a threat

The primary bear case against Adobe is that AI will allow anyone to create high-quality images and videos, potentially eliminating the need for complex professional software. But this logic ignores how creative professionals actually work.

Adobe is widely respected as the dominant software provider for creatives, and this is unlikely to change soon. Professional designers and marketers do not just want raw image generation; they need to edit, refine, and integrate those assets into broader workflows. Creatives will count on Adobe to innovate and package the latest tools directly into the interfaces they can dependably use daily.

Further, the addition of AI tools could actually make Adobe's software even more valuable to its users.

The company's fiscal first quarter of 2026 (a period that ended on Feb. 27, 2026) provided strong evidence that customers are embracing these new features.

Adobe's total fiscal first-quarter revenue rose 12% year over year to $6.4 billion. This was fueled by a 13% jump in subscription revenue, which reached $6.2 billion.

And the company's AI-focused products are seeing explosive demand.

Management noted that annualized recurring revenue from its AI-first offerings more than tripled year over year.

"Our mission to empower everyone to create represents an even larger opportunity as content powers all experiences in the AI era," Narayen said in the company's first-quarter earnings release.

For instance, Adobe is integrating generative AI models directly into its flagship products. In the fiscal first-quarter earnings call, management highlighted that its Firefly subscription and credit pack annualized recurring revenue grew 75% sequentially, while video generative actions increased eightfold year over year. Additionally, Adobe's annualized recurring revenue for its Acrobat AI Assistant climbed about threefold year over year.

"Our goal has always been to meet customers wherever they work across the broad range of surfaces they use every day," Narayen added during the earnings call, pointing out that emerging platforms have always been additive to the company's market opportunity.

In addition, Adobe's remaining performance obligations (RPO) -- a metric that tracks contracted future revenue -- climbed 13% year over year to $22.2 billion, indicating that customers are still locking into long-term commitments. The company also reported that its total annualized recurring revenue crossed $26 billion, up nearly 11% from the year-ago period.

Exceptional cash flow and big share repurchases

Beyond its top-line resilience, Adobe continues to operate a highly lucrative business model. The company generated a fiscal first-quarter record of nearly $3 billion in operating cash flow -- a huge sum for a company with a market capitalization of $99 billion as of this writing.

And management is aggressively using this cash to take advantage of the stock's discounted price. During fiscal Q1, Adobe repurchased 8.1 million shares for approximately $2.5 billion.

When a highly profitable company buys back its own stock at a depressed valuation, it can significantly enhance long-term shareholder returns by reducing the overall share count and boosting earnings per share.

A compelling valuation

This brings us to the price tag.

At about $241 per share, Adobe stock trades at a price-to-earnings ratio of only 14. But the forward-looking picture is even more striking. Management has guided for non-GAAP (adjusted) earnings per share between $23.30 and $23.50 for fiscal 2026. At the midpoint of that forecast, shares are trading at only about 10 times this fiscal year's expected earnings.

A valuation multiple this low typically implies that a business is in structural decline. Yet Adobe is still growing its revenue and earnings at a double-digit pace.

Of course, there are risks to consider. The CEO transition, for instance, introduces execution risk. Additionally, if macroeconomic conditions weaken, enterprise software spending could also slow. And, of course, there's the possibility that AI truly does turn out to be extremely disruptive to Adobe's business.

Ultimately, however, I think the market has priced in far too much pessimism, creating an attractive buying opportunity. Yes, AI could disrupt some parts of its business, but Adobe is well-positioned to benefit from this shift by integrating these capabilities into its industry-standard platform.

Daniel Sparks and his clients have 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.