Software and solutions provider Adobe ( ADBE ) is under scrutiny amid a sell-off in software stocks driven by fears over artificial intelligence (AI). Following the latest quarterly earnings, Citigroup analysts maintained a “Neutral” rating but lowered their price target from $315 to $278, indicating a change in market sentiment.
While Citi analyst Tyler Radke noted Adobe’s earnings beat, the slight decline in annualized recurring revenue (ARR) raised concerns among analysts. Adding to this uncertainty is the company’s CEO, Shantanu Narayen, who has announced his resignation once a replacement has been found. Argus Research analyst Joseph Bonner downgraded Adobe from “Buy” to “Hold” after news of the CEO change.
Despite the selloff in its stock, Adobe continues to rapidly integrate productive AI innovations across its product portfolio. In line with this, the company announced a strategic partnership with NVIDIA Corporation (NVDA) to accelerate AI-driven design, production, and personalization, including the release of improved Adobe Firefly models and agent workflows.
Given this background, let’s take a closer look at Adobe.
Adobe develops creative software and solutions for digital experiences, including document management tools, marketing automation, and analytics. Its products empower designers, marketers, and businesses to create, deliver, and optimize content across digital platforms. Headquartered in San Jose, California, Adobe is leading the way in cloud-based services that support creative workflows around the world. The company has a market capitalization of $104.35 billion.
Adobe stock has come under pressure amid investor concerns that AI productivity tools from OpenAI, Midjourney, Canva, and Figma are threatening the company’s dominance of Photoshop and Illustrator. The leadership change has also created some doubts.
Over the last 52 weeks, Adobe stock is down 36.45%, while it is down 28.94% year to date (YTD). In the last five days, it has decreased by 9.13%. Shares hit a 52-week low of $244.28 on Feb. 24, but up 0.7% from that level.
On a forward-adjusted basis, Adobe’s forward GAAP price-to-earnings ratio of 13.27x is lower than the industry average of 29.60x.
On March 12, Adobe reported its results for the first quarter of fiscal 2026 (quarter ended Feb. 27). Net income rose 12% year-over-year (YOY) to a record $6.40 billion, beating the $6.28 billion expected by Wall Street analysts. This was largely driven by subscription revenue, which rose 13% year over year to $6.20 billion. Adobe’s total ARR for the quarter was $26.06 billion. Most importantly, the company also reported that its first AI ARR more than tripled YOY.
Adobe’s non-GAAP operating income grew 11.8% from the year-ago period to $3.04 billion, while its non-GAAP EPS was $6.06 for the quarter, up 19.3% YOY and above the $5.88 analysts were expecting. Also, the company reported a record Q1 cash flow from operations of $2.96 billion. At the end of the quarter, remaining operating obligations (RPO) stood at $22.22 billion, with remaining operating obligations (cRPO) comprising 67% of the total.
Wall Street analysts are optimistic about Adobe’s future earnings. They expect the company’s EPS to rise 11.95% YOY to $4.59 in the current quarter. For fiscal 2026, EPS is expected to increase 10.4% annually to $18.99, followed by growth of 13.85% to $21.62 in fiscal 2027.
Apart from Argus research and Citi analysis, Wall Street analysts have recently offered different opinions on Adobe stock. On the same day, Goldman Sachs analyst Gabriela Borges lowered her price target for Adobe from $290 to $220 while maintaining a “Sell” rating, indicating a cautious view of the company’s prospects.
After first-quarter earnings, analysts at Mizuho lowered the company’s price target from $340 to $315, but maintained a bullish “Outperform” rating. Mizuho analysts noted that the company is trying to monetize its AI-powered tools, although market competition is tough, and macroeconomic uncertainty is significant.
On the same day, Wells Fargo analysts cut Adobe’s price target from $405 to $330, while maintaining an “overweight” rating on the stock. All-new ARR came in below expectations, and a surprise CEO change may have affected the stock, but eyes remain on how the use of AI ends the storms.
Adobe remains a favorite on Wall Street, with analysts giving it an overall “Average Buy” rating consensus. Out of 37 analysts rating the stock, 15 analysts rated it a “Strong Buy,” two analysts suggested a “Neutral Buy,” while 16 analysts played it safe with a “Hold” rating, and four analysts rated it a “Strong Sell.” The consensus price target of $339.32 represents a 37.9% upside from current levels. In addition, the high street price of $510 shows a 107.3% upside.
As of the date of publication, Anushka Dutta had no (directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is for informational purposes only. This article was originally published on Barchart.com
