Adobe has provided a strong fiscal 2025 performance.
The revenue reached more than $23.7 billion, with the annual growth being approximately 11%. The net income was approximately $7.1 billion, which was almost 28% higher than last year.
Recurring revenue in a year surpassed the $25 billion mark, and core segment growth was in the double-digits. Consumption of Creative Cloud and subscription businesses also expanded, and usage of generative AI components like Firefly continued to grow sensibly through the user base.
This appears as a business that is doing well in most of the operating metrics.
Margins are robust, and the net margins are near 30%; the cash flows are good, and Adobe is still compiling recurring revenue on a largely subscription business model.
Yet the stock has struggled.
In the past year, Adobe’s stock declined by approximately 26%. When one considers the peak that was achieved in mid-2024, the fall is nearer to 50%. This is a stark contrast to much of the wider AI-related world of technology with everything slightly related to models, compute, memory, or infrastructure, is highly re-rated.
Such a contrast is what makes Adobe interesting nowadays.
This is not a company that has lost profits or one that has apparent balance-sheet pressure. It is a high-margin software company that is scale and distribution and has a plausible AI roadmap. But still the market has not been convinced.
So, what is not being liked by the market? What skepticism is Adobe being discounted that it is not getting elsewhere in AI? And what does that mean as to how investors are differentiating AI infrastructure, AI platforms, and AI-enabled subscription businesses?
This is what this article is all about.
The market is questioning the shape of the next growth curve
If you strip Adobe down to first principles, it is a high-quality subscription business. It generates recurring revenue, generates cash, and has pricing power in a category where switching costs are real. That is why Adobe historically commanded a premium multiple.
The problem is that in the last 12–18 months, the market has started treating “AI exposure” as a spectrum, not a binary label. And Adobe sits in the part of the spectrum where the path from AI adoption to financial acceleration is harder to see.
In Adobe’s disclosures, FY2025 ended with Total Adobe ARR at about $25.2B, up 11.5% year-on-year, and Digital Media ARR at $19.2B, also up 11.5%. In other words, the business is still growing in double digits.
But the market is asking a different question: where is the step-change?
What the market is rewarding in AI today
But when “AI” is driving stock prices, what is getting rewarded most aggressively is not steady compounding. It is businesses that can show either:
- a clear new revenue stream that scales fast, or
- a sudden improvement in unit economics, or
- a flywheel that converts usage into monetization with minimal friction
Usage is visible, monetization is still gradual
The AI strategy used by Adobe is plausible, whereas the monetization profile is more gradual. The emphasis of adoption, product expansion, and ecosystem integration is even noted by management itself.
During Q4, Adobe recorded notable growth of generative credit consumption of about 3 times quarter-on-quarter. That is a real usage signal. However, it is not necessarily a revenue indicator, as credits are integrated into plans, upgrades are time consuming and monetizing the enterprise is through the sales cycles.
Thus, the market will discount Adobe due to a simple reason: AI is apparent in the product, although not yet evident in the growth rate.
This perception is confirmed even by the FY2026 guide by Adobe.
The company is aiming at Total Adobe ending ARR growth of about 10.2%. Again, this is not weak. However, in a context where infrastructure names are getting valued as growth will re-accelerate over the next few years, 10% now seems like it is normal, not AI-inflicted.
That is the reason why the stock reaction is somehow counter-intuitive. The market is not telling that Adobe is declining. It is indicating that Adobe is yet demonstrating that AI can make enough of a difference to its path to justify a new re-rating.
Adobe’s AI is being treated like “defense” first, “offense” later
A simple way to frame Adobe’s AI push is this: it is doing two things simultaneously.
One, protecting the core.
Creative Cloud, Acrobat, and the broader Document stack are defensible, but they are also exactly where generative AI threatens to unbundle workflows.
If image generation, video edits, design layouts, and basic creative tasks become cheaper and easier through standalone AI tools, the risk is not that Adobe loses everyone overnight. The risk is that the willingness to pay stops rising.
So Adobe is embedding AI deeply to ensure the product remains the default workflow. That is why the company talks about infusing AI across its lineup and driving the “book of business” with AI-influenced offerings.
In Q4, Adobe said Total new AI-influenced ARR exceeds one-third of its overall book of business. That sounds impressive, but the market reads it in two different ways:
- optimistically: AI is already part of the revenue engine,
- skeptically: AI is now table stakes to defend renewals and reduce churn.
Two, building new surfaces for monetization
This is where Adobe’s “offense” should eventually come from: Firefly as a standalone on-ramp, credit-based consumption, enterprise automation (Firefly Services and Foundry), and then a broader marketing stack where content creation and distribution are linked.
You can see the intent in the details. Adobe describes how different models and media types consume different quantities of generative credits, and how users can either move to higher plans or buy add-ons as usage rises. That is a very logical monetization framework. It is also gradual by nature.
The enterprise side is more meaningful, but again not instant.
Adobe’s management highlights momentum in large deals, including record bookings of deals above $1 million and growth in $10M+ ARR customers. This is a good signal: it suggests Adobe is not losing enterprise relevance. But investors also know enterprise AI monetization is lumpy and slower to show up in reported numbers.
So the market ends up in a waiting posture.
- It acknowledges that Adobe is executing.
- It acknowledges that AI adoption is real inside the products.
- But it also believes the first-order effect of AI, today, is cost and complexity (R&D, model partnerships, compute, go-to-market changes), while the second-order effect is monetization, which arrives later.
And markets usually do not pay premium multiples for a business whose near-term AI story is interpreted as “defense.” They pay for visible “offense.”
That is why Adobe’s stock can fall even as ARR grows. The market is effectively saying: show me that AI does not just protect Creative Cloud, but expands it.
Conclusion: Adobe looks like a strong business in an “impatient market”
Adobe’s operating performance suggests a company doing many things right: double-digit revenue growth, ARR above $25B, strong margins, and real signals that AI features are being used at scale. The stock’s drawdown, therefore, is not a verdict on execution. It is a verdict on narrative and timing.
In the current market, AI infrastructure gets rewarded because monetization is direct and immediate.
AI platforms get rewarded because distribution can create winner-take-most outcomes.
AI-enabled subscription businesses, however, get scrutinized because the market wants proof that AI will create a new growth curve rather than simply preserve the old one.
Adobe is likely closer to the third category today. That is not necessarily bad. It may even be the correct strategy for a long-duration franchise: defend the core first, then expand the monetization surface once adoption is embedded.
But until the financial profile starts to show that second step more clearly, the market may continue to treat Adobe as a great business with an AI story that is real, but not yet decisive.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. Please consult a qualified professional before making investment decisions.
Note: This article relies on data from fund reports, index history, and public disclosures. We have used our own assumptions for analysis and illustrations.
Parth Parikh has over a decade of experience in finance, research, and portfolio strategy. He currently leads Organic Growth and Content at Vested Finance, where he drives investor education, community building, and multi-channel content initiatives across global investing products such as US Stocks and ETFs, Global Funds, Private Markets, and Managed Portfolios.