Since OpenAI's ChatGPT made its debut in November 2022 and ushered in the Age of AI, the S&P 500 has risen 68%. While mostly powered by gains from big tech stocks, plenty of other companies like McDonald's and Starbucks have rallied on expectations that AI-driven technologies will supercharge productivity and increase margins.
Yet in this time frame, Adobe (ADBE 1.31%) has suffered. Shares of the $112 billion company, which offers creative products for photographers, video editors, graphic and experience designers, game developers, content creators, marketers, and more, trade down 21% on fears that AI content-creating technologies will make its services obsolete.
NASDAQ: ADBE
Key Data Points
This year, the sell-off has intensified, with shares down 23.5% year to date. The mainstream media is piling on, with Forbes wondering whether Adobe is a "falling knife," while Wall Street firms dumped a net 4.8 million shares last quarter.
The mounting pessimism about Adobe is reflected in rising short interest, or the percentage of the company's stock that has been sold short. As you can see, it's easily at an eight-year high.
Data by YCharts.
The short sellers may be right. But with bearish sentiment abounding, I'm reminded of something the legendary investor Jim Rogers once said: "When there's something about markets that everyone 'knows' to be true, it's time to look at the other side of the trade."
On this advice, I've asked myself what the bears may be missing -- and why Adobe could be a compelling buy today.
If Adobe is doomed, why do earnings keep rising?
In its first earnings conference held after ChatGPT took the world by storm, Adobe reported record revenue of $19.41 billion for the just-completed fiscal year, and 17% earnings growth year over year, with strong numbers in its Creative Cloud, Document Cloud, and Experience Cloud segments.
Image source: Getty Images.
Fast-forward three years, and Adobe again reported record results for the 2025 fiscal year. Revenue jumped to $23.77 billion, up 11% year over year. Net income jumped to $7.13 billion, up from $5.56 billion in fiscal 2024.
In the first three fiscal years that have been reported since the Age of AI kicked off, here's how Adobe's revenue, net income, and earnings per share have fared.
| Fiscal Year | Revenue | Net Income | EPS | Share Buybacks |
|---|---|---|---|---|
| 2022 | $17.61 billion | $4.76 billion | $10.10 | 15.7 million shares |
| 2023 | $19.41 billion | $5.43 billion | $11.82 | 11.5 million shares |
| 2024 | $21.51 billion | $5.56 billion | $12.36 | 17.5 million shares |
| 2025 | $23.77 billion | $7.13 billion | $16.70 | 30.8 million shares |
Data source: Adobe.com.
Looking down each column, it's striking how the numbers keep climbing, unless you count a slight slowdown in share buybacks in 2023. Adobe doesn't pay a dividend, so share buybacks are how management returns value to shareholders. Its repurchasing of over 70 million shares since 2022 is very significant for a stock with just 410.5 million shares outstanding.
Meanwhile, as Wall Street speculates that the $15.7 trillion AI revolution will bulldoze Adobe, the company is hugging the technology tight.
"The biggest opportunity for Adobe in decades"
In the company's Q3 earnings call last September, CEO Shantanu Narayen called the AI revolution "the biggest opportunity for Adobe in decades." He pointed to the popularity of the Adobe Experience Platform (AEP) AI Assistant, with 70% of eligible AEP customers using it, and the company's success in introducing innovative new AI-first products, with AI already heavily integrated into Adobe's flagship applications in Creative Cloud.
Since that call, the company has released its Q4 earnings report, which expanded on Adobe's adoption of AI across its platforms. One statistic stood out to me: In Q4, Adobe achieved record bookings of deals valued at over $1 million, while the number of clients paying Adobe $10 million or more in annual recurring revenue grew by 25% year over year.
This is a sign that Adobe's AI embrace is paying off, and that clients are thrilled with the fantastical-seeming abilities of its new services. Anything can happen, but as Mark Twain might say, rumors of this company's death are greatly exaggerated. For investors with moderate risk tolerance, Adobe is a worthy speculation.
