Adobe’s (ADBE) market value continues to slide as it finds itself at the center of the AI debate in the software tech space. On the one hand, AI-driven disruption and a surge of free or low-cost tools have fueled fears that the company might be losing its leadership in creative software. On the other hand, Adobe’s management is quietly showing that its position is far from threatened, through strong execution on its premium products and the rapid monetization of AI.
Elevate Your Investing Strategy:
- Take advantage of TipRanks Premium at 50% off! Unlock powerful investing tools, advanced data, and expert analyst insights to help you invest with confidence.
With shares down 37% over the past year, underperformance has intensified market skepticism, suggesting that Adobe is missing the AI opportunity. In reality, operational indicators and management’s tone point in the opposite direction. Anticipating some asymmetry in this narrative, I still see Adobe as a long-term buy at these levels. All in all, he who laughs last laughs loudest, and that’s precisely what I expect ADBE investors to do as the firm unveils (and executes) its AI integration masterplan.
AI Doesn’t Take All
Of course, when you’re the leader in a niche market, being at the top makes you everyone’s primary target. The situation is no different for Adobe in the creative software space, especially with AI shaping up to disrupt the industry through free or low-cost tools. Fears that Adobe’s position is at risk have arguably been one of the main factors behind its massive underperformance this year, reinforced by the company’s more conservative guidance.
But according to Adobe’s management team, there’s nothing to worry about. In a recent interview, CFO Dan Durn explained that Adobe does not compete in a simple “winner-takes-all” market. Instead, customers fall into two broad groups: (1) business professionals and consumers, made up of billions of users who want easy, democratic tools to create content; and (2) creative and marketing professionals, for whom Adobe’s tools are the “lifeblood” of their work, requiring precision, power, and enterprise-level workflows.
In short, while free AI generative tools like ChatGPT, Canva, and MidJourney may appeal to casual users, the vast majority of enterprise-level professional creators still want—and likely will continue to need—Adobe’s depth and integration. Management wants investors to understand that high-end users don’t just need “something that works.” They need accuracy, compliance, workflow integration, and predictability —high-value problems that free tools typically can’t solve.
Why Adobe’s Management Inspires Confidence
Several key factors underscore Adobe’s strong confidence in its ability to maintain its leadership in creative software over recent years.
First, Adobe is already proving AI monetization at scale, while competitors are still busy offering free or experimental tools. This is evident by the $3.5 billion in AI-influenced revenue today, with Firefly integrations already embedded inside Photoshop, Illustrator, and Express. Considering Adobe’s annual revenue base of around $18 billion, $3.5 billion is significant in relative terms.
Moreover, new AI products launched last year have already built a $125 million annualized book of business, and management expects that to double within three quarters. It’s rare to scale a $100M+ revenue line in under a year, which demonstrates rapid adoption among enterprises and marketing professionals—Adobe’s core audience.
More importantly, the fundamentals are far from being stressed. The forecast for the current full year calls for double-digit growth at scale (consensus EPS and revenue growth of 11.7% and 9.6% YoY, respectively), operating margins at 47.5%, around $2.5 billion in operating cash flow, and a record $20 billion in RPO (remaining performance obligations), growing double digits.
These metrics suggest that Adobe can fund innovation while continuing to deliver value to its shareholders. In my view, the execution story is the main strength of Adobe’s overall thesis. If Adobe continues to deliver numbers like this quarter after quarter, eventually—as the growth curve of new, free AI-tool players begins to flatten—the market should recognize Adobe as a clear AI leader.
Strategic Buybacks and Shareholder Value in Focus
Another key point highlighting the management team’s unwavering confidence in Adobe’s future is the number of buybacks carried out despite falling stock prices. For example, between 2022 and 2023, when Adobe’s stock fell by about 40%, roughly $12 billion was repurchased. In 2024, with shares down nearly 30%, around $10 billion was repurchased. In other words, from 2022 to 2024, these buybacks represent approximately 14% of the company’s current market cap.
From one perspective, this is excellent for shareholders, as reducing outstanding shares inflates EPS, allowing it to grow faster and increasing shareholder yield without relying on dividends. From another, it creates a mixed perception in the market regarding innovation, implying that “we would rather reduce shares than reinvest heavily”.
Indeed, the major tech companies that have performed best during the AI boom are those signaling high investments in AI, not those prioritizing shareholder returns—as has been the case with Apple (AAPL), as a prime example.
Furthermore, as Adobe’s market value continues to fluctuate, there’s a perception that some of these buybacks may not have been entirely worthwhile, raising questions about capital allocation. Yet, because EPS continues to be positively impacted, the market may still recognize the long-term benefits, even if short-term price movements remain volatile.
Is Adobe a Good Stock to Buy Right Now?
Overall, the market has been moderately optimistic about Adobe. Of the 28 analysts covering the stock over the past three months, 19 are bullish, six are neutral, and three are bearish. Adobe’s average price target is $482.08, implying a potential upside of over 35% over the coming year.
Confident Execution in a Disrupted Creative Market
Broadly speaking, it’s relatively easy to be bearish on Adobe at the moment. Broader AI trends don’t seem to favor major SaaS leaders, and Adobe, perceived as at risk of losing share to free AI tools, has been lumped into a “winner-takes-all” narrative in the creative software space. While there is arguably some level of threat to Adobe’s thesis that remains difficult to quantify, the company has already shown clear avenues to monetize AI, rather than be disrupted by it.
I believe the ongoing buyback program—which some may see as a distraction while the company supposedly loses its moat to other AI players—boosts EPS, though it can also create a perception effect. That would be a concern if operational cash generation weren’t strong, which clearly isn’t the case here.
Overall, I view buybacks as largely positive, especially given the company’s historically compressed multiples. Given the asymmetry in the “winner-takes-all” narrative in software AI, I recommend buying Adobe stock at current levels.