Creative software giant Adobe (ADBE) is on the cusp of reporting eagerly anticipated quarterly results next week, and, as usual, expectations are for another steady performance in line with—or slightly above—market estimates, consistent with its long history of top- and bottom-line beats. In other words, the software powerhouse is set to deliver yet another “beat-and-raise” — a moment when a company reports results beating analysts’ expectations while also raising forward guidance to boot.
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That said, the stock’s momentum over the past year has been underwhelming to say the least. Adobe has underperformed the broader market, losing nearly 40% of its market value over the past twelve months and 19% year-to-date.
If simply beating earnings and raising guidance were enough, Adobe shares wouldn’t be trading at such depressed levels. As I’ve noted in recent coverage, the stock’s performance has been heavily influenced by the evolution of AI in the creative software space.
The company’s pure-AI initiatives have contributed minimally to total revenue so far this fiscal year, which fuels concerns that competitors could disrupt the market and challenge Adobe’s position. How management addresses these points on earnings day will likely have a bigger impact on the stock than any small beat on revenue or EPS.
Given Adobe’s moat remains largely intact—supported by current fundamentals and forward guidance—the stock’s discount to peers seems overdone, reinforcing my Buy rating heading into earnings.
Adobe Poised for Another Broad-Based Beat in Q3
According to historical data, all signs point to Adobe posting another all-around beat. Over the last fifteen quarters, the company has only failed to exceed expectations three times: Q4 2021, when EPS came exactly in line with estimates, and Q3 and Q4 2022, when it missed revenue targets—but only by a tiny $3.2 million and $6.3 million, respectively. The last time Adobe actually missed earnings was back in Q4 2018.
This consistency in beating expectations highlights not only the structural strength of Adobe’s recurring revenue model but also management’s discipline in delivering predictable, resilient results—even in challenging macroeconomic conditions. That said, over the past three years, more than $20 billion in buybacks have helped boost EPS, which grew at a 15% CAGR during that period.
Looking at the most recent quarter, Q2 (May), Adobe slightly beat both EPS ($5.06 vs. $4.97) and revenue ($5.87B vs. $5.81B) expectations, with management even raising annual guidance—EPS now at $20.60 versus $20.35 previously.
For the upcoming August quarter (Q3), market expectations are for EPS of $5.18 (the midpoint of guidance) and revenues of $5.91 billion, which are essentially in line with management’s projections. This implies annual growth of roughly 11.3% for EPS and 9% for revenues. Despite the recent bearish momentum in Adobe stock, expectations for Q3 have actually ticked slightly higher compared to three months ago—up 1.5% for EPS and 0.4% for revenues.
Will the Market Accept Another ADBE Beat-and-Raise?
Evidently (and counterintuitively), based on Adobe’s performance over the past year, beating estimates and raising guidance has only sparked bearish sentiment.
Since its latest earnings report, Adobe’s market value has dropped by about 17%. And frankly, this had little to do with the market shrugging at Adobe’s ARR (annual recurring revenue) in its Digital Media segment, which jumped 12.1% year-over-year, or the company guiding for 11% growth in Fiscal 2025.
The main culprit behind the post-earnings slide was Adobe’s struggle to sell its AI story. The company reiterated plans to double its AI ARR, driven by Firefly, targeting $250 million—roughly 1% of expected annual revenue.
And while nothing in the recent results or guidance suggests that Adobe’s moat is threatened by generative AI slowing growth, it seems that low double-digit EPS growth and high single-digit top-line expansion aren’t enough to justify an 18.2x earnings multiple—about 22% below the application software industry average.
All Eyes on AI
Investor sentiment may hinge on Adobe’s ability to show that AI isn’t just a flashy add-on, but a genuine growth engine—one that accelerates adoption, drives differentiation, and monetizes effectively, without undermining the core business.
As a result, the primary focus on earnings day will likely be on Firefly, the newly launched AI-powered Acrobat Studio, and GenStudio, and how they are driving new ARR and paid adoption. Firefly, for example, saw roughly 24 billion image generations in Q2—a figure that has plateaued over the last three quarters. Any signs of acceleration, along with uptake of Firefly Pro/Premium tiers, would be a clear positive.
Additionally, growth in Creative Cloud Pro upgrades or early enterprise wins for GenStudio, demonstrating a measurable marketing impact from AI, could be enough to earn a favorable market reception.
Ultimately, a key way for Adobe to regain market confidence post-Q3 would be for management to clearly signal that capital allocation is focused on R&D and product expansion, rather than short-term returns to shareholders.
Is Adobe a Good Stock to Buy Right Now?
On Wall Street, analysts see plenty more legs in ADBE. The stock carries a Moderate Buy consensus rating based on 19 Buy, six Hold, and three Sell ratings over the past three months. ADBE’s average stock price target of $480.88 implies almost 40% upside potential over the next twelve months.
AI Progress Holds the Key to Market Reaction
The odds are, as usual, that Adobe will report earnings near the high end of its guidance, coming in slightly above market estimates. However, even if it posts a beat and raises annual guidance—as seems likely—that doesn’t guarantee a bullish stock reaction.
In my view, the key will be whether Adobe can demonstrate tangible progress in AI monetization, either through operating metrics breaking out of a plateau or upgrades within its Creative Cloud suite. That said, I see little evidence that the current expected growth pace warrants a valuation multiple trading at a significant discount to peers, and I continue to view Adobe as a Buy ahead of next week’s earnings news.