Adobe just posted record earnings. Then the CEO quit and the stock tanked.
If you’ve ever edited a photo, made a PDF, or designed anything on a computer, you’ve probably used Adobe. Photoshop, Illustrator, Acrobat - the company’s software has been the industry standard for decades. Tens of millions of people pay monthly subscriptions for their tools, generating $26 billion in recurring revenue per year. Last week they reported another record quarter - $6.4 billion in revenue, up 12%. Then, the same day, CEO Shantanu Narayen announced he’s stepping down after 18 years at the helm. The stock dropped 9% the next day, then another 7.6% the day after that.
Here’s where it gets interesting. On one hand, Adobe is facing the biggest threat it’s ever seen: AI tools like Canva and Midjourney that let anyone create professional-looking designs without touching Photoshop. On the other, the stock is now trading at half its historical valuation, with 89% gross margins and nearly $10 billion in free cash flow last year. Adobe even has its own AI tool called Firefly with 70 million monthly users. So is this a company in trouble, or a market overreaction that’s created a rare buying opportunity?
Here's how the community voted
Trading at half its historical P/E - Adobe’s stock is down 41% from its 52-week high despite record revenue, record cash flow, and 89% gross margins. At a P/E of ~15 and a forward P/E of ~10, this is the cheapest Adobe has been in years. The company generated $9.9 billion in free cash flow last year and bought back $20 billion worth of its own stock.
Firefly is gaining real traction - Adobe’s AI tool hit 70 million monthly active users by December 2025, up 35% year over year. AI credit usage tripled in Q4, and Firefly is baked directly into Photoshop and Illustrator. Unlike competitors, Adobe’s AI is “enterprise-safe” - trained on licensed content, not scraped from the internet - which matters to businesses worried about lawsuits.
The moat is deeper than people think - Professional creatives and big companies don’t switch design tools overnight. Adobe’s workflows are embedded in how entire industries operate, from advertising to film to publishing. Subscriptions grew 13% last quarter. If AI disruption was really hitting, you’d see that number going the other direction.
The CEO is leaving at the worst possible time - Shantanu Narayen transformed Adobe from a boxed-software company into a subscription powerhouse. His exit, with no successor named, creates a leadership vacuum right when the company needs a clear AI strategy more than ever. The board is still searching - that uncertainty alone could weigh on the stock for months.
AI could shrink Adobe’s entire market - The bear case isn’t just that competitors steal customers. It’s that AI makes creative work so fast and easy that companies need fewer software licenses altogether. Why pay for 10 Photoshop seats when an AI tool does the work of 5? Canva ships AI features in weeks while Adobe moves at enterprise speed.
The FTC just hit them with a $150 million settlement - Adobe settled charges that it made subscriptions deliberately hard to cancel and hid early termination fees. They now have to simplify cancellation and stop pre-selecting annual plans by default. That could lead to higher churn at the worst time.
Trading at half its historical P/E - Adobe’s stock is down 41% from its 52-week high despite record revenue, record cash flow, and 89% gross margins. At a P/E of ~15 and a forward P/E of ~10, this is the cheapest Adobe has been in years. The company generated $9.9 billion in free cash flow last year and bought back $20 billion worth of its own stock.
Firefly is gaining real traction - Adobe’s AI tool hit 70 million monthly active users by December 2025, up 35% year over year. AI credit usage tripled in Q4, and Firefly is baked directly into Photoshop and Illustrator. Unlike competitors, Adobe’s AI is “enterprise-safe” - trained on licensed content, not scraped from the internet - which matters to businesses worried about lawsuits.
The moat is deeper than people think - Professional creatives and big companies don’t switch design tools overnight. Adobe’s workflows are embedded in how entire industries operate, from advertising to film to publishing. Subscriptions grew 13% last quarter. If AI disruption was really hitting, you’d see that number going the other direction.
The CEO is leaving at the worst possible time - Shantanu Narayen transformed Adobe from a boxed-software company into a subscription powerhouse. His exit, with no successor named, creates a leadership vacuum right when the company needs a clear AI strategy more than ever. The board is still searching - that uncertainty alone could weigh on the stock for months.
AI could shrink Adobe’s entire market - The bear case isn’t just that competitors steal customers. It’s that AI makes creative work so fast and easy that companies need fewer software licenses altogether. Why pay for 10 Photoshop seats when an AI tool does the work of 5? Canva ships AI features in weeks while Adobe moves at enterprise speed.
The FTC just hit them with a $150 million settlement - Adobe settled charges that it made subscriptions deliberately hard to cancel and hid early termination fees. They now have to simplify cancellation and stop pre-selecting annual plans by default. That could lead to higher churn at the worst time.
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Gut reaction is like - probably ok? 14 P/E is nice. $100B market cap... in the tech world, it doesn't require a crazy imagination to look at a company like this and see it being 2x-3x that (in fact, even a reversion to the mean of its P/E takes it back there). Canva/figma etc have been around for a while and yet Adobe continues to grow. I don't see people vibe coding photoshop or AI eating everything in that regard. So IMHO, specifically at the current P/E, I think Adobe is probably over hated and this could be a good buy in the long term.