Adobe Is Down 64% From Its Peak. Is Sentiment Changing?

The AI trade has been booming, and yet has been taking its toll on this specific stock. Let’s talk about about Adobe Inc. $ADBE ( ▲ 0.51% )

Adobe is one of the more interesting large-cap value situations in software right now because the fundamentals and the stock price are telling very different stories. The business is still growing revenue at roughly 12–13%, generating enormous cash flow and buying back stock aggressively, while the market is valuing it as though AI may permanently impair its franchise.

At roughly $253/share, Adobe is down about 64% from its all-time intraday high of $699.54 reached in November 2021. That is an unusually severe drawdown for a company whose revenue, earnings and recurring revenue are all substantially higher today than they were at the peak.

The important point is that this isn't primarily an earnings-collapse story. It's a multiple-compression story. Adobe traded at roughly 50–60x earnings around 2021. Today it's around 14x GAAP earnings, because investors have dramatically reduced what they're willing to pay for Adobe's future earnings.

Let’s take a look at the numbers. Adobe's fiscal 2026 results so far have actually been quite strong. In Q1 Adobe reported $6.40 billion in revenue, up 12% YoY, while subscription revenue grew 13%. ARR reached $26.06 billion, up 10.9%, and operating cash flow was an enormous $2.96 billion in a single quarter. AI-first ARR more than tripled year over year. Adobe also repurchased 8.1 million shares.

And yet the shares fell after earnings. Part of the problem was that ARR growth had slowed from 11.5% exiting FY2025 to 10.9%, while Adobe simultaneously announced that longtime CEO Shantanu Narayen would step down. More importantly, management acknowledged that its traditional standalone Adobe Stock business was declining faster than expected because generative AI is increasingly replacing stock imagery.

The most recent quarter is probably the most important.

Adobe reported:

$6.76B revenue, +13% YoY
$6.13 adjusted EPS
$4.62 GAAP EPS
$27.50B ARR
$2.52B operating cash flow

AI-first ARR grew more than 150% YoY, while Adobe crossed 1 billion monthly active users across its creativity and productivity ecosystem. Subscription revenue grew 14%.

Adobe also raised its full-year targets again. It now expects FY2026 revenue of approximately $26.58–$26.63 billion, GAAP EPS of $18.12–$18.17 and non-GAAP EPS of $24.45–$24.50.

Yet the market again wasn't particularly impressed. Q4 revenue guidance of $6.80–$6.85 billion was a little light relative to Wall Street expectations, reinforcing concerns that growth could eventually slow as AI competition increases.

That disconnect is basically the entire Adobe investment debate.

There are several legitimate concerns, but they essentially revolve around one question:

Does generative AI make Adobe more valuable, or does it eventually make Adobe unnecessary?

The bear argument is pretty straightforward.

Historically, if you wanted to professionally edit images, video, PDFs, layouts or digital assets, Adobe controlled many of the industry-standard applications. Photoshop, Illustrator, Premiere, After Effects, Lightroom, Acrobat and InDesign collectively created a massive ecosystem and considerable switching costs.

Generative AI changes the equation. Instead of spending an hour manipulating an image in Photoshop, someone can increasingly tell an AI:

That enables companies including Canva, Figma, OpenAI and other AI-native competitors to provide functionality that previously required specialized Adobe software. Investors are therefore worried that AI lowers the technical barrier to building creative software and reduces the amount customers will pay for Adobe's traditional tools. Reuters specifically points to Figma and Canva as growing competitive concerns.

There is also a broader fear across software that AI agents could eventually reduce the number of traditional software seats businesses need. Adobe isn't alone—Salesforce, ServiceNow, Intuit and other software companies have been hit by similar concerns.

When looking at the chart, we see that the drop on $ADBE ( ▲ 0.51% ) has seemingly started to slow down.

As investors we have to ask ourselves the important question: Is this a good time to buy the fear, and can the company change the narrative? A company might generate an image with AI, but someone still needs to:

edit it, resize it, layer it, color correct it, incorporate brand assets, manage versions, collaborate with a team, export it, approve it, incorporate it into marketing campaigns and manage the underlying assets.

That's where Adobe's ecosystem matters.

Considering all current factors, the $200-$240 level looks arguably appealing in the long-term. It all comes down to having conviction in Adobe’s team to keep up with the race. Who’s to say they can’t successfully integrate AI into their product stack? They have the monetization already, and that’s the biggest concern when it comes to many companies.

Adobe doesn't need AI fears to disappear. It simply needs to demonstrate that it can continue growing while preserving its margins and using its cash flow to shrink the share count. At today's valuation, that alone could produce attractive long-term returns.

If Adobe instead proves that AI can reaccelerate growth through Firefly, Acrobat AI, Express, generative credits and enterprise content workflows, then there's potentially significant multiple expansion on top of earnings growth.

So at roughly 14x earnings, the market may be pricing in more AI damage than Adobe's actual results justify. The uncertainty deserves a discount; a ~70% discount to Adobe's historical median P/E looks much harder to justify unless you believe the core Creative Cloud franchise is headed toward secular decline.