Adobe ( ADBE ), the software maker behind Photoshop and Acrobat, beat estimates for its May quarter earnings and raised its guidance for the full year.
However, the company told Wall Street it will grow at a slower pace this year, as it reported record sales.
Investors sold ADBE on news, pushing the stock to its lowest level for the year.
The reason for Adobe’s slow growth has to do with a bet the company is making about how customers will use its artificial intelligence tools.
JPMorgan has reset the ADBE target because of it.
Why JPMorgan is cutting its Adobe price after a strong quarter
JPMorgan lowered its price target on Adobe to $340 from $420 while maintaining its overweight rating, meaning the company still expects the stock to beat the market, MarketScreener reports.
The cut came after the second quarter report, and the trigger was guidance.
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Adobe lowered its forecast for annual recurring revenue growthWall Street’s strong subscription income is watching closely, at about 2 percent from about 10.2 percent.
JPMorgan has read the move as Adobe is gearing up near-term spending for higher profits in the future.
Which means the company is giving up subscription dollars right now to capture the huge long-term opportunity in AI.
However, while the logic makes sense, it requires investors to be patient, but the market was already nervous about Adobe and was in no mood to wait.
Adobe shares fell to a 52-week low after the company cut its recurring revenue forecast.Smith Collection/Gado / Getty Images
Adobe reported for its second quarter
The second quarter looked tight.
Adobe posted record revenue of $6.62 billion, up 13% from a year earlier, and non-GAAP earnings of $5.96 per share, both ahead of estimates, according to the company’s earnings release to Business Wire.
Total annual recurring revenue reached $27.10 billion, and the piece tied to Adobe’s new AI products more than tripled from a year ago to more than $500 million, according to an SEC filing.
Adobe’s second quarter at a glance
Record revenue of $6.62 billionup 13% year-on-year.
Non-GAAP earnings of $5.96 per shareabove the $5.82 consensus, TipRanks noted.
Full year income and suggested profit targets.
Recurring revenue growth guidance was lowered by about 2 percentage points.
Why Adobe’s freemium AI bet investors
Adobe leans towards the freemium approachwhich means giving users free access to additional AI features in hopes of converting them into paying customers later.
According to Investing.com, executives acknowledged that the change is dampening revenue in the short term, and said their stock photography business has fallen more than expected.
The strategy is unproven, and time has made it difficult to accept.
Related: JPMorgan resets Broadcom stock price
Chief Financial Officer Dan Durn from June 15 to join Marvell Technology, the second-highest exit in three months after Chief Executive Officer Shantanu Narayen said plans to step down once a successor has been found.
With no permanent CEO and now no permanent CFO, investors are pricing in the risk of being killed during a significant AI shift.
The stock fell about 7% the day after the report and remains so down about 18% in five trading days.
How Adobe stock stacks up against the market and its peers
Adobe’s sales stood out in a broader market, which was rising.
A day Adobe slide, the S&P 500 rose about 1.75%,again iThe Nasdaq gained about 2.54%making Adobe a clear outlier.
ADBE has lost nearly half its value from its 52-week high near $405, and analysts have warned for months that cheap, AI-based creative tools are eating into its place.
Competitors such as Autodesk and the day of work fell on the same day, however no one is as strong as Adobe.
What has to go right for Adobe’s AI bet to pay off
Investors who choose patience rely on a freemium system that works.
Adobe needs the free users it attracts now to become paying subscribers later, and it needs its AI products to continue to converge quickly enough to make up for the ongoing revenue that is now ceasing.
What should happen next
Free users convert programming at a healthy rate.
Initial AI revenue continues to grow more than $500 million.
Adobe names permanent CEO and the CFO to set the strategy.
Stock image and Creative Cloud sustainable businesses.
Wall Street didn’t write off Adobe Stock.
The analyst price estimate remains near $321well above where the stock is trading, and even after the target cut, many firms maintain buy or hold ratings, TipRanks noted.
JPMorgan’s $340 target still points to reasonable gains if the plan delivers.
For investors, the takeaway is straightforward. Adobe is cheaper than it has been in years, trading at about 12 times, but it carries real risks while leadership is unstable and freemium bets are unchecked.
Anyone buying now is betting that AI’s long-term payoff is coming before patience runs out. This is not investment advice, and the system may still stumble if those free users don’t convert.
Related: Morgan Stanley cuts targets on 3 software stocks after earnings
This story was originally published by TheStreet on Jun 14, 2026, where it appeared first in the investing category. Add TheStreet as a favorite source by clicking here.
