Adobe's stock has fallen after the last four earnings calls. Can AI finally deliver?

Adobe faces significant investor skepticism ahead of its earnings report, with its stock down 20% year-to-date and having declined after the last four earnings calls, driven by concerns that AI could disrupt its core business. Investors are closely watching for evidence of meaningful revenue growth from its Firefly AI technology, particularly net new Digital Media Annualized Recurring Revenue, which analysts expect will fall short of the $500 million needed to satisfy the market. Despite long-term bullish outlooks from some analysts, immediate results are not expected to fully counter the "AI bear narrative," as Adobe grapples with competition from tools like Canva and low adoption of Firefly among its user base.

Analysis

Adobe (ADBE) is approaching its earnings report under significant duress, with its stock down 20% year-to-date and having fallen after its last four earnings announcements. This performance is driven by an "AI bear narrative" and investor fears that generative AI could render its traditional software obsolete, a sentiment reflected in an "exceedingly low" investor mood and a per-ticker sentiment score of -0.7. The central challenge for management is to demonstrate that its Firefly AI technology can drive meaningful growth and attract new customers. A key metric under scrutiny will be net new Digital Media Annualized Recurring Revenue (ARR); Jefferies analysts project this figure at $469 million, below the $500 million threshold they believe is necessary to satisfy skeptical investors. Competitive pressures are mounting from platforms like Canva, which is gaining traction with a "freemium" model, and a Jefferies survey indicates that even among Adobe's paid users, ChatGPT usage (65%) surpasses that of Firefly (48%). Furthermore, enterprise adoption remains nascent, with 67% of CIOs reporting limited to no use of the Firefly ecosystem. While analysts from Jefferies and Deutsche Bank maintain a long-term bullish outlook, viewing Adobe as a high-quality company and a potential long-run AI winner, they do not expect the upcoming results to significantly alter the negative short-term debate, framing material AI contribution as a more likely 2026-2027 event.

Key Decisions for Investors

• Scrutinize the net new Digital Media ARR figure, as a result below the unofficial $500 million benchmark is likely to extend the stock's trend of post-earnings declines.
• Monitor management's commentary for concrete strategies and metrics related to Firefly user adoption and monetization, particularly how it plans to compete with established user habits involving tools like ChatGPT and Canva.
• Given the extremely negative sentiment and historical price action, investors should prepare for significant volatility around the earnings release and may consider hedging long positions or waiting for the post-earnings narrative to stabilize.
• Long-term investors may view the current pullback as a potential entry point, aligning with bullish analyst price targets, but must be prepared to hold through a period where material AI revenue contributions are not expected for several years.