One of the prevailing themes in recent months has been artificial intelligence (AI) disruption or the threat that AI poses to some established tech companies, primarily software providers. The basic idea is that as AI capabilities advance, it is able to do things for free that some companies have monetized for years, essentially making those companies less relevant.
One of the most potentially "disrupted" companies, at least as far as investors see it, is Adobe (ADBE 1.29%), the digital document and media software provider.
Image source: Getty Images.
Adobe stock tanked about 30% to start the year, falling to its lowest price since 2019. But since closing at $246 per share on Feb. 24, it has rallied 11% to about $273 per share as of March 5.
The concern among investors is that the number of subscriptions, or "seats," that Adobe sells to corporations will dwindle as people find cheaper ways to create and manage documents and digital media. AI disruption is a real concern for some companies, but is it overblown with respect to Adobe?
Here are two reasons why March could be a pivotal month for Adobe.
Revenue has been strong
The Adobe sell-off comes despite excellent earnings in its latest quarter. The company had record revenue of $6.2 billion, up 10%, while net income rose 10% to $1.85 billion. For the full fiscal year, revenue climbed 11% to $23.8 billion while adjusted net income rose 7% to $8.9 billion or $20.95 per share.
Also, it ended the year with $22.5 billion in remaining performance obligations (RPO) -- up 13% from the previous year. Of that amount, 65% of the contracts will be executed within the next 12 months.
NASDAQ: ADBE
Key Data Points
The outlook for fiscal 2026 calls for 9% revenue growth, which is slightly down from the 2025 growth rate. Adjusted earnings are targeted for 7% to 8% growth, which is in line with the previous year.
So, the growth numbers and pipeline look robust. The annual recurring revenue (ARR), which shows the health of its subscriptions, grew 11.5% in 2025. Most of that came from digital media ARR, which also grew 11.5%. The digital media ARR is important because that includes its AI-related products, where Adobe is shifting its focus to as it looks to stave off AI disruption.
What to look for in March 12 earnings
For fiscal 2026, Adobe guided for 10.2% total ARR growth, which would be down a bit from 2025. Investors should be tuned in to is the digital media ARR when Adobe reports Q1 earnings on March 12.
In fiscal Q1, ended Feb. 27, analysts are targeting net new digital media ARR of $440 million to $450 million. This will be an important metric to watch, because if Adobe meets or exceeds that number, it may show that Adobe is having success with its AI products and minimizing the disruption. If it falls below that, investors may see that as a negative sign.
Another reason that Adobe could pop in March is its valuation. The stock is trading at just 16 times earnings and 11 times forward earnings. So if the results are solid, investors may be looking to pick up shares at a dirt cheap valuation.
