Adobe's Stock Is Down 43% From Its Peak — But Its AI Revenue Tells a Completely Different Story

The consensus on Adobe is not complicated. The argument, stated simply, is this: Adobe built its business by selling creative professionals tools that take years to master. Photoshop. Illustrator. Premiere Pro. InDesign. If generative AI can produce in seconds what used to require thousands of hours of trained human skill, the argument goes, the value proposition of Adobe's expensive software subscriptions collapses. Why pay $60 a month for Creative Cloud when a free AI tool can do the job?

It is a clean thesis. It is also, the evidence is beginning to suggest, wrong in important ways.

The Numbers Behind the Fear

Adobe closed Thursday at $259.21 per share, down from its all-time high of approximately $455 reached in 2021. That is a decline of more than 43% over roughly four years, most of which has occurred as the AI disruption narrative has gathered force. Analysts who covered the company as a dominant, irreplaceable software franchise have been reclassifying it as a disruption risk, with price targets cut and ratings downgraded.

The fears crystallized in early February when Anthropic introduced new agent-based automation tools with direct creative applications. The news sent Adobe shares lower in a single session, and it reinforced a story that has been building since the launch of Midjourney, DALL-E, Sora, and a dozen other AI-native creative tools that have made impressive strides in image generation, video synthesis, and design automation.

At $259, Adobe trades at approximately 22 times its projected fiscal year 2026 earnings. For a software company with 11% annual revenue growth and deeply entrenched enterprise relationships, that multiple is not obviously expensive. But it reflects the market's demand for a significant discount to account for the disruption risk the market perceives.

What Adobe Is Actually Doing With AI

Here is the part of the Adobe story that the disruption narrative tends to obscure: Adobe is not a passive victim of AI disruption. It is one of the most aggressive AI integrators in the software industry.

Firefly, Adobe's proprietary generative AI model, has been embedded across the Creative Cloud suite with a speed and depth that has surprised even its most skeptical analysts. AI-influenced annual recurring revenue now exceeds one-third of Adobe's entire business. That is not a rounding error. It is a structural shift in how the company generates revenue.

The mechanics matter here. Adobe is not simply adding an AI feature and hoping customers use it. It is building consumption-based AI revenue on top of its subscription base. Generative credits, which customers use to generate AI images, videos, and assets within Creative Cloud, are creating a new revenue layer that expands the lifetime value of each subscriber without requiring Adobe to acquire new customers. Generative credit consumption surged 3x quarter-over-quarter in Adobe's most recent reported period, a growth rate that is difficult to manufacture with accounting creativity.

The enterprise adoption numbers are equally compelling. The number of clients paying Adobe more than $10 million in annual recurring revenue grew by 25% year over year in fiscal Q4 2025. These are not small businesses experimenting with the free tier. These are multinational corporations that have embedded Adobe into their creative and marketing workflows at a scale that creates significant switching costs.

"Adobe's Firefly application, which provides creators with generative AI capabilities, is gaining strong adoption from Creative Cloud customers. We achieved more than 15% year-over-year growth in total monthly active users across Acrobat, Creative Cloud, Express, and Firefly."

Adobe Q4 FY2025 Earnings Call

The Record Revenue That the Bear Case Ignores

The bear case on Adobe rests heavily on the premise that AI will erode the company's subscription revenue. The actual revenue trajectory has not cooperated with this thesis.

Adobe's fiscal year 2025, which ended in November 2025, produced record revenue of $23.77 billion, up 11% from the prior year. Q4 alone generated $6.19 billion in revenue, also a record, with non-GAAP earnings per share of $5.50 that exceeded analyst consensus by a meaningful margin.

For fiscal year 2026, Adobe's management has guided for revenue of $25.9 billion to $26.1 billion and non-GAAP earnings per share of $23.3 to $23.5. The midpoint of that revenue guidance implies approximately 9% growth, consistent with the company's trajectory over the past several years. The 21 analysts who cover the stock have a consensus price target of $414.38, representing approximately 60% upside from current levels. That gap between the stock price and the analyst consensus reflects the magnitude of the market's current uncertainty discount.

The Competitive Threat Is Real — but It Is Not Fatal

It would be dishonest to dismiss the competitive pressures Adobe faces. They are real. Midjourney, Runway, ElevenLabs, and a growing ecosystem of AI-native creative tools offer capabilities that would have seemed impossible two years ago at price points that undercut Creative Cloud significantly.

The question is not whether these tools exist. It is whether they can replace what Adobe actually provides to its most important customers.

Adobe's core value proposition at the enterprise level is not just software features. It is workflow integration, enterprise security, compliance, content authenticity (through its Content Credentials initiative), and a level of output control that AI-native generative tools do not yet match. A marketing team at a Fortune 500 company cannot simply generate advertising images with Midjourney and publish them in a regulated market without the provenance tracking and legal protections that Adobe's ecosystem provides.

At the individual creative professional level, the competitive dynamics are more complex. Some portion of Adobe's less engaged individual subscribers may, over time, find that AI-native tools meet their needs adequately. The company's response to this risk has been to move upmarket, deepen enterprise relationships, and build the kind of AI capabilities that complement rather than replace human creative judgment.

What the Analysts Who Follow This Most Closely Think

The analyst community on Adobe is not monolithic. The Bears point to the AI disruption risk, the slowing growth trajectory relative to the company's pre-AI peak, and the valuation premium that the stock still carries relative to the disruption risk. The Bulls point to the AI revenue integration, the record bookings, the enterprise moat, and the significant gap between the current stock price and the sum-of-the-parts valuation implied by the company's subscription metrics.

The consensus, reflected in the average $414 price target, is closer to the Bull case than the Bear. But the stock price is trading at a steep discount to that consensus, reflecting real uncertainty about how the competitive dynamics will evolve over the next two to three years.

The Opportunity and the Risk

Adobe at $259 presents a specific kind of investment question. It is not a question of whether the business is profitable and growing, because it clearly is. It is a question of whether the market's current assessment of the disruption risk is accurate, overstated, or understated.

If the market is right, and AI-native tools gradually commoditize the creative software market, Adobe's revenue growth will slow, its margins will compress, and the stock will continue to underperform. If the market is wrong, and Adobe's AI integration creates a flywheel that deepens its enterprise relationships and expands its total addressable market, the stock could recover a substantial portion of its peak-to-trough decline.

The financial evidence, for now, points toward the latter scenario. Revenue is growing. AI adoption within the platform is accelerating. Enterprise relationships are deepening. The 43% decline from the peak reflects fear more than demonstrated financial deterioration.

That does not make it a riskless investment. But it may make it one of the more interesting risk-adjusted opportunities in a technology sector that has become difficult to navigate. The market has already priced in a very bad outcome. If the outcome turns out to be merely mediocre, or better, the distance between current prices and fair value is substantial.