Adobe Results Risk Cementing AI Laggard Status as Stock Slides

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Adobe Results Risk Cementing AI Laggard Status as Stock Slides. Earning on desk

stock :: 2025-09-11 :: source - bloomberg

By Ryan Vlastelica

(Bloomberg) -- Investors who have watched shares in Adobe Inc. get left behind in the AI craze have little reason for optimism ahead of the software maker’s latest quarterly results.

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Wall Street is expecting a full-year sales forecast for growth of nearly 10% — a solid rate of expansion, but one that would be the slowest for Adobe in over a decade. Analysts see the pace receding every year through fiscal 2028, at a time when investors can target clearer AI winners like Oracle Corp. that are anticipating accelerating growth in the coming years.

The key headwind for Adobe is a world suffused with artificial intelligence applications that threaten to undermine its core business of making software for creative professionals. Some AI tools can generate images from user prompts nearly instantaneously, for example. And while Adobe has its own suite of AI products, investors have so far deemed them insufficient to stave off the long-term threat.

“AI image generation that replaces stock photography and image-editing software is the most obvious example of where we’re already seeing disruption,” said Brian Barbetta, co-leader of Wellington Management’s Technology Team and co-portfolio manager on the global innovation strategy. “AI companies are growing so quickly that it really seems like it is coming at the expense of legacy names.”

San Jose-based Adobe has become the poster child for incumbent software companies seen as being at risk of disintermediation from AI. The stock is down more than 20% this year and twice that since the end of 2023 — a stretch that’s seen an exchange-traded fund tracking software stocks rise more than 40%. The beatdown has left Adobe trading at less than 16 times earnings, near its lowest valuation in more than a decade.

Adobe’s fiscal third quarter earnings report on Thursday afternoon is expected to show revenue growth of 9.3% while net earnings per share expand 7%, according to the average of analyst estimates compiled by Bloomberg.

Investors have reason to stay cautious about Adobe, whose past four reports all led to selloffs, with its most recent forecast underlining AI concerns. Adam Crisafulli, founder of the market intelligence firm Vital Knowledge, last week wrote that Adobe “faces some of the most existential risk from AI” of any large software company, and that results from others haven’t eased concerns.

Design software company Figma Inc., which Adobe unsuccessfully attempted to acquire, gave an underwhelming forecast last week, sending shares tumbling. A disappointing report from Salesforce Inc. — another legacy software company seen at risk from disruption — underscored how even inexpensive stocks with their own AI strategies are struggling.

“The death of Adobe is probably somewhat exaggerated, but the burden of proof is on them,” said David Wagner, portfolio manager at Aptus Capital Advisors. “It needs to show it can compete and innovate, and the only way it can do that is with consistent growth — not just this quarter, but over the next several years. It’s tough to see how that happens.”

Sentiment is not entirely dour. More than two-thirds of the analysts tracked by Bloomberg continue to recommend buying, a higher ratio than for Apple Inc. Adobe trades more than 35% below the average analyst price target, making for the third-highest implied return among any component of the S&P 500 tech sector index.

Wellington’s Barbetta warned that investors seeing low valuations as opportunities in cases like this could get burned.

“If a company is truly facing risk of disruption, forward estimates are often wrong, meaning companies that look cheap are actually very expensive because they can’t stay at the leading edge of technology,” he said, adding that AI competition could pressure seat licenses and pricing, weighing on margins and making it difficult to re-accelerate growth.

Some analysts remain confident in Adobe’s ability to navigate the transition to the AI era. Morgan Stanley’s Keith Weiss flagged Snowflake Inc. as a possible model, as the company’s recent results eased concerns about its own AI risk.

“Rather than looking for the next software company to be considered a ‘GenAI winner,’ perhaps focus on incumbents that can be the next Snowflake – showing stability in their core business and the pace of innovation to expand their opportunity by well enabling GenAI capabilities in their platforms,” he wrote in a Sept. 2 note. In this light, Adobe is “worth sharpening pencils on.”

This view was echoed by Conrad van Tienhoven, a portfolio manager at Riverpark Capital, who continues to hold a small stake in Adobe, though it was previously one of his biggest holdings.

“Adobe continues to offer good growth, great margins, and now at a very cheap valuation,” he said. “While there are concerns about its future, the market has already decided it is going to be a loser. That’s the opportunity. If Adobe gets AI right, at this valuation, it could be a huge success.”

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Oracle Corp.’s 36% rally to add about $250 billion in market value Wednesday is a record, even if the stock’s percentage gain isn’t. The biggest jumps in Oracle’s share price came in its early days of trading — 1987 and 1992 — when the company’s market value was a fraction of where it is now.