The S&P 500 Index ($SPX) is hitting new all-time highs, putting tariff uncertainty, recession fears, and geopolitical turmoil on the back burner. Tech stocks have also participated in the rally with a few exceptions. Adobe Systems (ADBE), for instance, is down 13% for the year as of this writing.
The stock’s underperformance is not unique to 2025. It lost a quarter of its market capitalization last year, missing out on the tech rally. ADBE trades nearly 45% lower than its all-time high and has been out of favor with the market for quite some time now.
To be sure, Adobe is no longer the kind of growth story it once was, and its revenues are expected to grow by less than 10% each in 2025 and 2026. The stock’s valuations have also adjusted to the kind of growth Adobe is delivering. However, are the valuations now at a level where Adobe enters the “buy” zone? Let’s discuss.
What’s Wrong with Adobe Stock?
To begin with, let’s analyze why Adobe stock has sagged.
Firstly, the company is facing intense competition, particularly from Canva, whose paid users are now over half of Adobe Creative Cloud. Adobe tried acquiring Figma, which is its competitor in collaborative design tools and UX/UI design, but had to abandon that deal as it failed to get regulatory clearances.
Markets are also apprehensive about the company’s ability to monetize its artificial intelligence (AI) investments. Notably, AI is both an opportunity and a threat for Adobe as new competitors could put pressure on its pricing power, putting its juicy margins at risk.
In hindsight, it seems Adobe management wasn’t prudent with its capital allocation and spent aggressively on buybacks. While it still has a formidable balance sheet, the company repurchased shares at a much higher price than what they currently stand at.
The Bull Case for ADBE
But it’s not all over for Adobe. The company boasts significant recurring revenues through subscriptions. It reported digital media annualized recurring revenue (ARR) of $18.09 billion at the end of the quarter ending May, with the number rising 12.1% compared to the same time last year. The company expects its ARR book to rise 11% in the current fiscal year, which looks quite decent even as the growth has arguably come down.
Among others, Firefly has helped expand the company’s ecosystem. During its fiscal Q2 earnings call, Adobe said that the app is attracting new users to its franchise, and its subscribers rose 30% in the quarter.
Adobe’s gross margins are nearly 90% while adjusted operating margins are in the mid-40s, which is quite healthy. The company’s subscription-based business helps it post fat margins, and historically, the stock has traded at a premium to broader markets given its business model.
ADBE Stock Forecast
Overall, of the 34 analysts covering Adobe stock, 23 have a “Strong Buy” rating while two rate it as a “Moderate Buy.” The remaining nine analysts rate the stock as a “Hold” or some equivalent.
Adobe stock trades slightly above its Street-low target price of $380, while the mean target price of $499.40 implies upside potential of nearly 30%. Analyst action following Adobe’s fiscal Q2 2025 earnings release was quite mixed. While some analysts raised their target price after a strong report where the company beat on all key metrics, others cut their target price.
Is Adobe Stock a Buy Now?
Adobe’s outlook was perhaps best summed up by CFRA Research analyst Angelo Zino, who lowered his target price from $575 to $500. In his note, Zino said, “Still, at near historical-low valuations and given its highly recurring business model and attractive margins, we think shares offer an enticing risk/reward opportunity, but investors may need to be patient due to limited catalysts.”
Adobe’s valuations have corrected amid the slowing growth and concerns over competitive pressure. It currently trades at almost 20x its expected EPS in the fiscal year 2026, which would end in November 2026. I believe the valuations are quite comfortable at these levels, even after pricing in the headwinds. Concerns over the company losing out to new startup rivals might be a bit overblown, and I find the stock’s risk-return as reasonably attractive here, even as they are not mouthwatering, and the chances of an immediate re-rating look bleak.
Overall, Adobe is one growth stock that I will keep on my radar, and would consider adding positions if the stock sees more downward pressure.
