Adobe delivered everything investors asked for in its Q4 earnings: record revenue, earnings beats, AI adoption metrics that exceeded expectations, and a strategic acquisition to boot. The stock bounced 5% on the news—yet remains down over 20% year-to-date.

The disconnect between Adobe's execution and its stock price reveals the challenge facing companies monetizing AI: even strong results can disappoint when expectations are stratospheric.

Q4 Results: The Good News

Adobe's fiscal fourth quarter delivered across the board:

  • Revenue: $6.19 billion (up 10% YoY), beating estimates of $6.11 billion
  • EPS: $5.50 non-GAAP, beating estimates of $5.40
  • Full-year revenue: $23.77 billion—a record, up 11% YoY
  • Operating cash flow: Over $10 billion for the year

The AI metrics were particularly impressive. Consumption of generative credits across Creative Cloud, Firefly, and Express increased 3x quarter-over-quarter. Monthly active users across freemium offerings grew over 35% year-over-year to more than 70 million.

Firefly—Adobe's generative AI engine—is clearly gaining traction. It's not just a feature; it's becoming a platform integrated deeply into Photoshop, Illustrator, Premiere, Express, and Experience Cloud.

The Semrush Acquisition

Adobe announced a $1.9 billion all-cash acquisition of Semrush Holdings, expected to close in the first half of 2026. Semrush is a leading SEO and "brand visibility" platform used by marketers to optimize search rankings and track competitive positioning.

The strategic logic: as AI-generated content proliferates, understanding how brands appear across search engines, LLMs, and digital channels becomes critical. Semrush gives Adobe tools to help marketers maintain visibility in an increasingly AI-driven discovery landscape.

At $12 per share, the acquisition isn't cheap—but it fills a capability gap in Adobe's Experience Cloud offering.

FY2026 Guidance: Solid But Not Spectacular

Adobe guided to:

  • Revenue: $25.9-$26.1 billion (roughly 9% growth)
  • Non-GAAP EPS: $23.30-$23.50
  • ARR growth: Approximately 10%

The guidance is respectable but not the acceleration bulls hoped for. After a year of AI hype, some investors expected Adobe to show hockey-stick growth from Firefly monetization. Instead, the company is guiding to steady, high-single-digit expansion.

Why the Stock Struggles

Adobe's year-to-date decline of 20%+ reflects several concerns:

1. AI Monetization Uncertainty

Firefly usage is surging, but converting free users to paying subscribers takes time. Adobe offers generous free tiers to drive adoption; the question is whether those users eventually pay. So far, the conversion evidence is encouraging but not conclusive.

2. Competition Intensifies

Canva, Figma (which Adobe failed to acquire), and new AI-native tools threaten Adobe's creative suite dominance. While Adobe has the deepest feature set, competitors are "good enough" for many use cases at lower prices.

3. Enterprise Sales Cycles

Adobe's Experience Cloud—its enterprise marketing platform—faces longer sales cycles as companies evaluate AI investments carefully. Growth in this segment has been slower than Creative Cloud.

4. Valuation Reset

Adobe traded at over 45x forward earnings at its 2021 peak. Today it's around 25x—still premium, but reflecting reduced growth expectations. Multiple compression can overwhelm even solid fundamental performance.

What Bulls See

Adobe optimists point to several factors:

Firefly moat: Unlike competitors using third-party AI models, Adobe trained Firefly on licensed content. This protects customers from copyright liability—a significant enterprise selling point.

Pricing power: Adobe raised Creative Cloud prices in 2024 with minimal churn. The company can monetize AI features through higher subscription tiers.

ARR durability: Subscription revenue is sticky. Adobe's 10%+ ARR growth implies predictable, recurring cash flows regardless of quarterly fluctuations.

Capital returns: Adobe has been aggressively buying back stock at depressed valuations. If the stock recovers, current repurchases will look well-timed.

The Investment Case

Adobe presents a classic "quality at a reasonable price" opportunity:

  • Market leader in creative software with decades of moat
  • AI capabilities that are real and differentiated (Firefly)
  • Consistent double-digit earnings growth
  • Strong balance sheet and cash generation
  • Valuation near multi-year lows

The risk: AI disruption is real. If competitors' AI tools become good enough to displace Adobe's professional-grade software, the moat erodes. That's not happening today, but it's the fear embedded in the stock price.

The Bottom Line

Adobe's Q4 results were objectively strong: record revenue, earnings beats, tripling AI usage, and a strategic acquisition. Yet the stock trades like a company with problems rather than a company with momentum.

The disconnect reflects sky-high expectations for AI monetization that Adobe is meeting but not exceeding. Investors want explosive growth; Adobe is delivering steady growth with AI optionality.

For patient investors, Adobe's current valuation offers a reasonable entry into a market-leading franchise. The AI transformation is working—just not as fast as the market initially hoped. Whether that represents opportunity or trap depends on your time horizon.