Adobe (ADBE) saw its stock tumble 14% on Thursday, March 13, 2025, following its latest quarterly earnings report. While the company delivered better-than-expected results—$5.08 per share and $5.71 billion in revenue, topping LSEG estimates of $4.97 per share and $5.66 billion—investors remain jittery. The sell-off reflects growing concerns over Adobe’s sluggish growth trajectory and its ability to monetize artificial intelligence (AI) amid fierce competition in the generative AI space. Let’s unpack the numbers, the market reaction, and what lies ahead for Adobe in 2025.
Strong Earnings, Weak Sentiment
Adobe’s fiscal Q1 results, covering the period ending February 28, 2025, showcased a 10% year-over-year revenue increase to $5.71 billion. Net income soared to $1.81 billion ($4.14 per share), a sharp rise from $620 million ($1.36 per share) a year ago. Adjusted earnings of $5.08 per share, excluding stock-based compensation and tax impacts, also beat forecasts. For the current quarter, Adobe projects $4.95 to $5.00 per share on $5.77 billion to $5.82 billion in revenue—aligning closely with LSEG’s consensus of $5.00 per share and $5.80 billion.
Yet, these solid figures couldn’t quell investor unease. The stock’s steep decline signals deeper worries: Is Adobe losing its edge in the fast-evolving AI landscape, and can it turn generative AI into a sustainable revenue driver?
AI Monetization: Progress, but Not Enough?
Adobe’s push into AI is showing early promise. The company reported $125 million in annualized recurring revenue (ARR) from AI-driven features in the quarter, with expectations to double that to $250 million by fiscal year-end. CEO Shantanu Narayen, speaking on CNBC’s Closing Bell: Overtime on Wednesday, emphasized AI’s dual role: enhancing existing products like Photoshop and Premiere Pro while spawning new revenue streams. “The innovation we’ve delivered is creating value,” Narayen asserted.
Analysts, however, want more proof. Bernstein’s Mark Moerdler, who maintains a buy rating on ADBE, noted that for investors to view Adobe as an “AI winner,” they need “longer-term trends” showing AI isn’t merely cannibalizing existing revenue. Morgan Stanley’s Keith Weiss echoed this, calling the new AI contribution disclosure “a step in the right direction” but urging a “clearer roadmap” at Adobe’s upcoming investor meeting during its annual conference next week. Both firms remain bullish, suggesting the dip could be a buying opportunity.
Competitive Pressures Mount
Adobe’s dominance in creative software is under scrutiny as competitors like Canva and open-source AI tools gain traction in generative design. Investors fear the company’s 9% projected revenue growth for fiscal 2025—$23.3 billion to $23.55 billion, with adjusted earnings of $20.20 to $20.50 per share—may not keep pace in a market demanding rapid AI innovation. The LSEG consensus ($20.40 per share, $23.49 billion) aligns with Adobe’s midpoint guidance, but the lack of aggressive upside has fueled skepticism.
The perception that Adobe is “falling behind” in generative AI—where rivals are aggressively rolling out text-to-image and video tools—has dented confidence. Despite integrating AI into flagship products and launching initiatives like Firefly, Adobe must convince the market its strategy can deliver outsized growth.
What’s Next for Adobe in 2025?
Looking ahead, Adobe’s fiscal 2025 outlook signals steady, if unspectacular, progress. The projected 9% revenue growth reflects resilience in its subscription model, bolstered by Creative Cloud and Document Cloud demand. However, the investor meeting at next week’s Adobe Summit could be a make-or-break moment. A detailed AI roadmap—outlining how Firefly and other tools will drive ARR beyond $250 million—could restore faith.
For now, the 14% drop leaves Adobe’s stock at a crossroads. Bernstein and Morgan Stanley see long-term value, but short-term volatility may persist until Adobe proves its AI bets can outshine competitors. As Narayen navigates these challenges, the spotlight is on whether Adobe can reclaim its growth narrative in an AI-driven world. Stay tuned for updates from the Adobe Summit, March 17-19, 2025.
