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Software giant Adobe (ADBE), best-known for game-changing tools like Photoshop and Acrobat, has fallen out of favor with investors. Once a darling of the tech world, ADBE stock has slumped this year, weighed down by intensifying competition, concerns over its subscription-heavy model, and growing doubts about whether the company is truly keeping up in the fast-moving artificial intelligence (AI) race.
To its credit, Adobe hasn’t been sitting idle. The company has entered the AI arena with tools like Firefly, signaling a bold push to stay ahead of the curve and prove it's a major player in the creative tech space. Still, rival platforms like Canva are closing in fast. Investors are growing increasingly wary of whether Adobe can successfully turn its AI investments into real profits.
While AI holds huge potential, it also opens the door to fresh competition, threatening Adobe’s long-held pricing power and enviable margins. Even so, not all hope is lost on Wall Street. DBS, for one, remains firmly in the bullish camp. The firm recently reaffirmed its “Buy” rating, setting a Street-high price target of $660. Can Adobe overcome the hurdles and reclaim its momentum in time to hit that lofty target by the end of 2025?
About Adobe Stock
Valued at a market capitalization of roughly $160 billion, California-based Adobe is now laser-focused on writing its next chapter with AI. At the heart of this shift is Firefly, its generative AI platform that turns simple prompts into stunning content while keeping IP protection front and center. Seamlessly integrated into Creative Cloud, Firefly is reshaping workflows and attracting fresh users.
In fact, Adobe took a bold step into mobile AI last month with the launch of its Firefly smartphone app. Available on iOS and Android, the app combines Adobe’s own AI model with those from OpenAI and Google (GOOGL), bringing powerful, on-the-go creative tools to users’ fingertips.
While Adobe’s AI ambitions may be growing, ADBE stock has been moving in the opposite direction, weighed down by fierce competition in the generative AI space. Over the past year, shares have tumbled a notable 35%, heavily underperforming the broader S&P 500 Index’s ($SPX) 12% return during the same stretch.
The slump has continued within 2025, with Adobe down 15% year-to-date (YTD) compared to the broader market's steady climb of almost 6%. As competition in the AI space intensifies, investors appear to be waiting for stronger evidence that Adobe’s strategy will deliver meaningful returns.
While the stock isn't exactly cheap, Adobe’s valuation has certainly pulled back sharply from its historical highs, now trading at 22 times forward earnings and 7.5 times sales. Although the drop reflects investor caution amid mounting AI competition and execution risks, it could also signal a potential rebound opportunity if the firm proves it can turn its AI investments into sustainable growth.
A Look Inside Adobe’s Q2 Earnings
Adobe released its fiscal 2025 second-quarter earnings report on June 12, exceeding Wall Street’s top- and bottom-line projections. The company posted a record $5.9 billion in quarterly revenue, an 11% year-over-year (YOY) increase that edged past Wall Street’s $5.8 billion forecast.
Adobe wrapped up the quarter with a hefty backlog, locking in roughly $19.7 billion in Remaining Performance Obligations (RPO), a clear sign of strong demand and solid revenue visibility ahead. Earnings didn’t disappoint either, with adjusted EPS of $5.06 rising 13% from the prior year and topping estimates for $4.96 per share. Adobe’s core business segments continue to show solid momentum.
Digital Media revenue climbed 11% YOY to $4.4 billion, fueled by steady demand for its creative and document solutions. Annualized recurring revenue (ARR) for this segment also saw a healthy 12.1% boost, reaching $18.1 billion. Meanwhile, Digital Experience revenue shot up 10% to $1.5 billion, with subscription revenue in that segment growing 11% to $1.3 billion. Adobe’s leadership sees AI as a game-changer across its customer base.
CEO Shantanu Narayen, for instance, emphasized that the company’s AI innovations are transforming industries and unlocking new levels of creativity for individuals and businesses alike. CFO Dan Durn echoed that view, noting that continued investment in AI is not only boosting performance but also expanding Adobe’s reach across diverse customer segments.
Riding on a solid first-half performance, Adobe has raised the bar for its full-year outlook. The company now expects fiscal 2025 revenue to land between $23.5 billion and $23.6 billion, slightly above its previous range. Adobe also raised its adjusted EPS forecast for the entire year to a range of $20.50 to $20.70.
What Do Analysts Think About Adobe Stock?
Adobe may be under pressure, but Wall Street’s outlook remains somewhat optimistic, with analysts holding a consensus “Moderate Buy” rating overall. Of the 34 analysts offering recommendations, 23 advocate for a solid “Strong Buy,” two suggest a “Moderate Buy,” eight play it safe with “Hold,” and the remaining analyst gives a “Strong Sell" rating.
The average analyst price target of $494.73 indicates 26% upside potential from current levels, but DBS’ ambitious Street-high target of $660 suggests that ADBE stock can rally as much as 75%.
Final Thoughts
Adobe is clearly in a transition phase, navigating the challenges of a competitive AI landscape while working to prove its innovation still packs a punch. The company is making meaningful strides with tools like Firefly and strong integration across its platforms, but ADBE stock’s recent slump shows that investors are still waiting for more convincing results.
That said, Adobe’s latest earnings show solid business momentum, and its raised guidance suggests growing confidence from within. With its valuation now well below historical levels, there could be room for a rebound, especially if the company can turn its AI push into tangible growth. The $660 target is certainly ambitious, but with the right execution, it remains within the realm of possibility.
