Sometimes, it feels like there’s no light at the end of the tunnel when it comes to market sentiment around Adobe (ADBE) stock. Performance has been weak, down 22% so far this year, and even the most recent Q3 earnings—which were solid and exceeded market expectations—weren’t enough to spark a more bullish reaction amid persistent skepticism.
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As I noted in recent coverage, a brief sequential slowdown in subscriptions in Q3 was enough for some investors to label Adobe, again, as a leading software company supposedly losing its moat to AI. Yet, from a financial fundamentals perspective, there’s arguably no real reason to highlight flaws.
This, combined with the fact that Adobe is trading at historically low multiples, suggests to me that much of the pessimism is more subjective than warranted by actual financial performance. And, naturally, there’s a significant asymmetry in the upside vs. downside thesis. To push back against some of the bearish points, here are three less quantitative—but still compelling—reasons why I maintain a Buy rating on Adobe.
The Moat Remains Strong and Built Around Workflow
In recent years, especially over the past twelve months, several new generative AI companies, most notably OpenAI, have released powerful and innovative tools. Some of these are arguably even superior to specific Adobe products for certain tasks, which is enough to raise questions about whether Adobe could lose its relevance in the creative software market if competitors develop more advanced AI.
But looking only at AI’s impact on a single Adobe tool misses the bigger picture. The strength of this leading creative software company has never been about having the flashiest individual product; it’s about owning a complete end-to-end creative workflow. With more than 50 integrated products spanning content creation, design, analytics, and more, Adobe effectively provides an operating system for creativity that’s still very hard to replicate (and which provides over $18 billion in annual recurring revenue).
For example, each tool—Photoshop, Illustrator, Premiere, and so on—integrates seamlessly with shared storage, libraries, and AI assistants. This level of integration is difficult to copy overnight. As a result, enterprise churn is limited because a large portion of Adobe’s customer base builds its entire creative process around the ecosystem. Leaving it would mean rebuilding workflows from scratch—and that’s exactly the power of a well-built ecosystem.
In practical terms, this creates enormous switching costs. Enterprise clients often sign multi-year Creative Cloud or Experience Cloud contracts. There’s also a culture of legacy designers who’ve spent years mastering Adobe interfaces, along with teams relying on shared cloud assets and templates. The takeaway is that Adobe’s moat doesn’t depend on a single product. It depends on an integrated ecosystem that generative AI platforms are still far from replicating in the creative software space.
The Trust Factor in Adobe’s AI Strategy
One point that’s often overstated involves the legal and ethical issues around how AI models are trained. Currently, companies like OpenAI use internet data without the explicit permission of content creators—a so-called “opt-out” approach, where materials are used unless the creator actively requests otherwise. This model remains legally questionable and is likely to face regulation in the future.
Adobe, on the other hand, has taken a much more cautious approach. Its generative AI tool, Firefly, relies only on licensed data and ethically sourced content, such as Adobe Stock. While this may not seem critical to individual consumers, it’s essential for enterprises. No CMO or creative studio wants to risk a campaign piece that could trigger a copyright lawsuit tomorrow.
As a result, Adobe earns a trust premium with enterprise clients—its flagship customer base—and enjoys a clear compliance advantage that is likely to grow as AI regulations tighten.
ADBE Remains a Financial Powerhouse Built to Outlast
Although Adobe has lost around 30% of its market value over the past year, it remains excellent in terms of cash generation and gross margins. For example, over the last twelve months, Adobe’s operating cash flow margin has been exceptionally strong at 42%, up from 37.5% in Fiscal 2024. At the same time, gross margins have reached an impressive 89.1%, the highest level the company has seen in the past decade.
At a minimum, this provides Adobe with the financial flexibility to invest in R&D, absorb competitors, and integrate new AI capabilities without putting its balance sheet at risk. In addition, products like Firefly are already being woven into Creative Cloud apps at virtually no incremental customer acquisition cost, likely boosting ARPU and sustaining organic margin expansion.
So, I would say Adobe is not only weathering the AI disruption well from a financial standpoint but is actively funding it. Its big advantage is that it can play the long game, even if the market doesn’t fully appreciate it right now, supported by durable free cash flow, a strong balance sheet, and decades of customer lock-in—which I believe will eventually be rewarded.
Is ADBE a Buy, Hold, or Sell?
Most of the Street consensus on ADBE is bullish. Out of 27 ratings in the last three months, 17 recommend Buy, eight recommend Hold, and only two recommend Sell. ADBE’s average stock price target is $459.92, implying a potential upside of 33% from the current share price.
When Fear Beats Facts at Adobe
I believe the lack of positive sentiment surrounding Adobe shares is much more subjective (and potentially speculative) than it is grounded in fundamental pillars. Undeniably, the growth story may face headwinds, but the magnitude of these effects seems somewhat overstated.
At current depressed prices, the market appears to overlook the fact that Adobe operates a full workflow model, with solid moats that aren’t easily threatened by new AI platforms—and that, at the same time, the company’s rock-solid financials reinforce this resilience and provide the strength to correct any misdirection.
That said, I remain structurally bullish on Adobe. I see an asymmetry between perceived risks and actual threats to the company’s finances, which doesn’t justify the stock trading at such a discount. This presents an opportunity to be constructive and go long on ADBE while it remains undervalued.