Adobe (ADBE) Analysis:
Adobe’s stock was already under pressure heading into this year, and the increasing uncertainty around software-as-a-service (SaaS) companies has accelerated the sell-off in recent weeks.
What happened to Adobe?
The problem isn’t about financial performance, it’s about competition and AI. Adobe has always been the standard for creative tools, but cheaper alternatives have surfaced that have slowed growth…especially from the consumer front. Where Adobe does still shine is their enterprise reach, which they’ve rolled out new AI driver growth drivers to. With AI tools like OpenAI’s Sora, Gemini’s Nano Banana, and dozens of other names…investors fear that the long term dominance of Adobe is no longer predictable.
The reality:
If we look at SaaS stocks as a whole, we’ll see that Adobe is not alone in this fight. Names like Salesforce (CRM), Microsoft (MSFT), ServiceNow (NOW), Palantir (PLTR)…etc. have sold off because investors fear AI will “take over” the services these companies provide…or at least pressure margins. For Adobe, that hasn’t necessarily been the case…in fact, they’re taking advantage of their existing customer base and rolling out AI features directly to them. Their long history and expansive customer base gives them an edge…and they moved quickly to provide new creative tools and services for their large enterprise customers.
To get a good sense of how they’re doing, we have to dive into the numbers. Adobe has maintained about 10% quarterly growth for the past four years…shortly before their stock began to fall (reached its peak in 2021). Prior to this, Adobe’s quarterly growth was closer to 20%+…so, as the pace of revenue growth slowed, investors turned on Adobe…not because it’s a bad company, but because they’re not willing to pay a premium for a stock with flat earnings when other names like semiconductors have been growing at a much faster rate.
The question now is whether or not Adobe’s dominance is truly impacted by other AI tools. At 15x P/E, and 30% net margins…Adobe is looking oversold and like a bargain, but it may take strong earnings to give them a kickstart. Since investors are worried about dominance and AI competition, Adobe needs to reignite confidence with stronger than expected outlook and guidance for 2026 and maybe beyond. Earnings are scheduled on March 12th.
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