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Adobe Drops 10% in a Month: Buy, Sell or Hold ADBE Stock?
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Key Takeaways
Adobe shares fell 10.4% in a month, underperforming peers in the tech sector.
AI-driven ARR surpassed $5B, with new AI-first products reaching a $250M milestone.
Adobe lifted FY25 revenue and earnings guidance, citing strong demand for AI offerings.
Adobe’s (ADBE - Free Report) shares have declined 10.4% in the past month, underperforming the Zacks Computer and Technology sector’s return of 1.3% and the Zacks Computer – Software industry’s appreciation of 0.1%. The underperformance reflects modest growth prospects due to stiff competition in the AI and generative AI space from the likes of Microsoft (MSFT - Free Report) -backed OpenAI, Alphabet (GOOGL - Free Report) , Salesforce (CRM - Free Report) , Midjourney, Canva and others.
Adobe shares have underperformed Microsoft, Alphabet, and Salesforce in the past 30 days. While shares of Microsoft and Salesforce have returned 0.6% and 0.7%, respectively, Alphabet has declined 0.2%.
ADBE Stock’s One-Month Performance
Image Source: Zacks Investment Research
Meanwhile, Adobe has a Value Score of C, which suggests a stretched valuation. In terms of Price/Book, Adobe is trading at 11.71X higher than the broader sector’s 11.28X, Microsoft’s 11.07X, Alphabet’s 8.38X and Salesforce’s 3.82X.
ADBE’s Valuation
Image Source: Zacks Investment Research
Adobe shares are now trading below the 50-day and 200-day moving averages, indicating a bearish trend.
ADBE Trades Below the 50-Day and 200-Day SMAs
Image Source: Zacks Investment Research
So, what should investors do with Adobe shares right now? Let’s find out.
Adobe’s Growing AI Business to Push the Stock Higher
Adobe’s strategy of infusing AI into its portfolio is driving growth, as reflected by the third quarter of fiscal 2025 results. Adobe AI influenced annual recurring revenues (ARR), which surpassed $5 billion, and management expects it to continue to rise as a percentage of Adobe’s business. ARR from new AI-first products, including Firefly, Acrobat AI Assistant and GenStudio for performance marketing, hit Adobe’s end-of-year target of more than $250 million.
Adobe’s third-quarter fiscal 2025 Digital Media ARR increased 11.7% year over year at constant currency, driven by strong demand for AI-powered Creative Cloud Pro and Acrobat, as well as AI-first products, Firefly and Acrobat AI Assistant. The monthly active users of Acrobat and Express grew approximately 25% year over year within the Business Professionals and Consumers segment. Adobe has been successfully monetizing Acrobat offerings, including the AI assistant and the recently launched Acrobat Studio.
The Creative Professionals business benefited from increasing demand and usage of AI in Photoshop, Premiere Pro and Illustrator as part of the new Creative Cloud Pro offering. The addition of Firefly and third-party models in Creative Cloud Applications drove generative AI (Gen AI) usage sequentially. The Marketing professionals business benefited from the strong demand for Adobe Experience Platform (AEP) and native applications. ARR grew more than 40% year over year as enterprises focus on delivering personalization at scale for customer engagement.
Workfront, Frame, AEM Assets, Firefly Services and GenStudio for performance marketing products, which comprises the integrated GenStudio solution, now exceed $1 billion in ARR and are growing more than 25% year over year. One Adobe deal saw 60% year-over-year growth, reflecting an improving footprint among enterprises.
Adobe Raises FY26 Guidance on AI Push
Adobe now expects fiscal 2025 revenues between $23.65 billion and $23.7 billion ($21.51 billion in fiscal 2024), up from the previous guidance range of $23.5-$23.6 billion. Fiscal 2025 non-GAAP earnings are now expected between $20.80 per share and $20.85 per share ($18.42 per share in fiscal 2024), higher than the previous guidance of $20.50-$20.70 per share.
For fiscal 2025, the Zacks Consensus Estimate for revenues is currently pegged at $23.67 billion, suggesting 10.1% growth from 2024’s reported figure. The Zacks Consensus Estimate for earnings is pegged at $20.77 per share, up a couple of cents per share over the past 30 days. The figure indicates 12.8% growth from fiscal 2024’s reported figure.
Adobe’s AI business is minuscule compared with the likes of Microsoft, Alphabet, and Salesforce. Microsoft’s Intelligent Cloud revenues are benefiting from growth in Azure AI services and a rise in the AI Copilot business. Alphabet’s focus on infusing AI heavily across its offerings, including Search and Google Cloud, has been a major growth driver. Salesforce’s strategy of continuous expansion of Gen AI offerings is helping it tap growth opportunities.
In terms of revenue, Microsoft and Alphabet reported 18.1% and 13.8% year-over-year growth in their fourth-quarter fiscal 2025 and second-quarter 2025, respectively. The figures are better than Adobe’s 10.7% revenue growth in the recently concluded quarter. Microsoft and Alphabet’s net Income margin expanded 160 basis points (bps) and 140 bps, respectively, against Adobe’s contraction of 150 bps, reflecting the fact that Adobe faced hardship in converting revenues to profit.
Conclusion
Adobe’s focus on improving monetization of its AI-powered solutions is a positive for investors already holding the stock. However, a stretched valuation, macroeconomic challenges, and stiff competition make the stock a risky bet right now.
Image: Bigstock
Adobe Drops 10% in a Month: Buy, Sell or Hold ADBE Stock?
Key Takeaways
Adobe’s (ADBE - Free Report) shares have declined 10.4% in the past month, underperforming the Zacks Computer and Technology sector’s return of 1.3% and the Zacks Computer – Software industry’s appreciation of 0.1%. The underperformance reflects modest growth prospects due to stiff competition in the AI and generative AI space from the likes of Microsoft (MSFT - Free Report) -backed OpenAI, Alphabet (GOOGL - Free Report) , Salesforce (CRM - Free Report) , Midjourney, Canva and others.
Adobe shares have underperformed Microsoft, Alphabet, and Salesforce in the past 30 days. While shares of Microsoft and Salesforce have returned 0.6% and 0.7%, respectively, Alphabet has declined 0.2%.
ADBE Stock’s One-Month Performance
Image Source: Zacks Investment Research
Meanwhile, Adobe has a Value Score of C, which suggests a stretched valuation. In terms of Price/Book, Adobe is trading at 11.71X higher than the broader sector’s 11.28X, Microsoft’s 11.07X, Alphabet’s 8.38X and Salesforce’s 3.82X.
ADBE’s Valuation
Image Source: Zacks Investment Research
Adobe shares are now trading below the 50-day and 200-day moving averages, indicating a bearish trend.
ADBE Trades Below the 50-Day and 200-Day SMAs
Image Source: Zacks Investment Research
So, what should investors do with Adobe shares right now? Let’s find out.
Adobe’s Growing AI Business to Push the Stock Higher
Adobe’s strategy of infusing AI into its portfolio is driving growth, as reflected by the third quarter of fiscal 2025 results. Adobe AI influenced annual recurring revenues (ARR), which surpassed $5 billion, and management expects it to continue to rise as a percentage of Adobe’s business. ARR from new AI-first products, including Firefly, Acrobat AI Assistant and GenStudio for performance marketing, hit Adobe’s end-of-year target of more than $250 million.
Adobe’s third-quarter fiscal 2025 Digital Media ARR increased 11.7% year over year at constant currency, driven by strong demand for AI-powered Creative Cloud Pro and Acrobat, as well as AI-first products, Firefly and Acrobat AI Assistant. The monthly active users of Acrobat and Express grew approximately 25% year over year within the Business Professionals and Consumers segment. Adobe has been successfully monetizing Acrobat offerings, including the AI assistant and the recently launched Acrobat Studio.
The Creative Professionals business benefited from increasing demand and usage of AI in Photoshop, Premiere Pro and Illustrator as part of the new Creative Cloud Pro offering. The addition of Firefly and third-party models in Creative Cloud Applications drove generative AI (Gen AI) usage sequentially. The Marketing professionals business benefited from the strong demand for Adobe Experience Platform (AEP) and native applications. ARR grew more than 40% year over year as enterprises focus on delivering personalization at scale for customer engagement.
Workfront, Frame, AEM Assets, Firefly Services and GenStudio for performance marketing products, which comprises the integrated GenStudio solution, now exceed $1 billion in ARR and are growing more than 25% year over year. One Adobe deal saw 60% year-over-year growth, reflecting an improving footprint among enterprises.
Adobe Raises FY26 Guidance on AI Push
Adobe now expects fiscal 2025 revenues between $23.65 billion and $23.7 billion ($21.51 billion in fiscal 2024), up from the previous guidance range of $23.5-$23.6 billion. Fiscal 2025 non-GAAP earnings are now expected between $20.80 per share and $20.85 per share ($18.42 per share in fiscal 2024), higher than the previous guidance of $20.50-$20.70 per share.
For fiscal 2025, the Zacks Consensus Estimate for revenues is currently pegged at $23.67 billion, suggesting 10.1% growth from 2024’s reported figure. The Zacks Consensus Estimate for earnings is pegged at $20.77 per share, up a couple of cents per share over the past 30 days. The figure indicates 12.8% growth from fiscal 2024’s reported figure.
Adobe Inc. Price and Consensus
Adobe Inc. price-consensus-chart | Adobe Inc. Quote
Adobe’s Prospects Suffer From Stiff Competition
Adobe’s AI business is minuscule compared with the likes of Microsoft, Alphabet, and Salesforce. Microsoft’s Intelligent Cloud revenues are benefiting from growth in Azure AI services and a rise in the AI Copilot business. Alphabet’s focus on infusing AI heavily across its offerings, including Search and Google Cloud, has been a major growth driver. Salesforce’s strategy of continuous expansion of Gen AI offerings is helping it tap growth opportunities.
In terms of revenue, Microsoft and Alphabet reported 18.1% and 13.8% year-over-year growth in their fourth-quarter fiscal 2025 and second-quarter 2025, respectively. The figures are better than Adobe’s 10.7% revenue growth in the recently concluded quarter. Microsoft and Alphabet’s net Income margin expanded 160 basis points (bps) and 140 bps, respectively, against Adobe’s contraction of 150 bps, reflecting the fact that Adobe faced hardship in converting revenues to profit.
Conclusion
Adobe’s focus on improving monetization of its AI-powered solutions is a positive for investors already holding the stock. However, a stretched valuation, macroeconomic challenges, and stiff competition make the stock a risky bet right now.
ADBE currently has a Zacks Rank #3 (Hold), which implies that investors should wait for a more favorable point to accumulate the stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.