Important points
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Since ChatGPT ushered in the age of AI, Adobe’s stock price has fallen 21% due to concerns that AI will make its services obsolete.
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The selloff has accelerated in recent months as investors bet on stocks and interest in short selling increases.
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During the period of the stock price decline, Adobe increased its revenue, net income, and earnings per share each fiscal year.
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Since OpenAI’s ChatGPT debuted in November 2022, ushering in the era of AI. S&P500 It increased by 68%. Primarily driven by gains in big tech stocks, but many other companies as well mcdonalds and starbucks There are growing expectations that AI-powered technology will significantly improve productivity and increase profits.
However, in this time frame, adobe (NASDAQ:ADBE) I’ve been suffering. Shares of the $112 billion company, which provides creative products to photographers, video editors, graphic and experience designers, game developers, content creators, marketers and others, fell 21% on concerns that AI content creation technology could make its services obsolete.
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The sell-off has been intense this year, with shares down 23.5% since the beginning of the year. Mainstream media continues to grow; forbes While Wall Street companies sold a net 4.8 million shares last quarter, Adobe is wondering if it’s a “falling knife.”
The growing pessimism about Adobe is reflected in an increase in short interest, or the percentage of the company’s stock sold short. As you can see, it is at its highest level in well over eight years.
Data by YCharts.
The short sellers may be right. But as bearish sentiment prevails, I am reminded of something legendary investor Jim Rogers once said: “When there’s something about the market that everyone ‘knows’ to be true, it’s time to look at the other side of the trade.”
Taking this advice, I’ve been asking myself what the bears are missing and why Adobe could be an attractive buy right now.
If Adobe is doomed, why does it continue to be profitable?
In its first earnings call after ChatGPT took the world by storm, Adobe reported record sales of $19.41 billion and 17% year-over-year profit growth for the just-completed fiscal year, with strong numbers in its Creative Cloud, Document Cloud, and Experience Cloud segments.
Image source: Getty Images.
Three years later, Adobe reported another record performance in fiscal year 2025. Sales soared to $23.77 billion, an 11% increase from the same period last year. Net income increased to $7.13 billion from $5.56 billion in fiscal 2024.
Here are Adobe’s revenue, net income, and earnings per share for the first three fiscal years reported since the era of AI began.
| fiscal year | revenue | net profit | EPS | Stock buyback |
|---|---|---|---|---|
| 2022 | $17.61 billion | $4.76 billion | $10.10 | 15.7 million shares |
| 2023 | $19.41 billion | $5.43 billion | $11.82 | 11.5 million shares |
| 2024 | $21.51 billion | $5.56 billion | $12.36 | 17.5 million shares |
| 2025 | $23.77 billion | $7.13 billion | $16.70 | 30.8 million shares |
Data source: Adobe.com.
Looking at each column, it’s impressive that the numbers continue to rise, unless you factor in the slight slowdown in share buybacks in 2023. Adobe doesn’t pay a dividend, so stock buybacks are the way management returns value to shareholders. For the company, which has only 410.5 million shares outstanding, the buyback of more than 70 million shares since 2022 is extremely important.
Meanwhile, while Wall Street speculates that the $15.7 trillion AI revolution will hit Adobe hard, the company remains firmly committed to the technology.
“Adobe’s biggest opportunity in decades”
During the company’s third-quarter earnings call last September, CEO Shantanu Narayan called the AI revolution “Adobe’s biggest opportunity in decades.” He noted the popularity of Adobe Experience Platform (AEP) AI Assistant, used by 70% of eligible AEP customers, and the company’s success in introducing innovative new AI-first products, with AI already highly integrated into Adobe’s flagship applications in Creative Cloud.
Since that call, the company released its fourth quarter earnings report and detailed the implementation of AI across Adobe’s platforms. One statistic stood out to me. In the fourth quarter, Adobe achieved record bookings for transactions of $1 million or more, and the number of clients paying Adobe $10 million or more in annual recurring revenue increased 25% year over year.
This shows that Adobe’s AI efforts are paying off and that customers are excited about the new service’s ability to look fantastic. Anything can happen, but as Mark Twain would say, rumors about the demise of this company are greatly exaggerated. For investors with a moderate risk tolerance, Adobe is a company worth speculating on.
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William Dahl holds a position at Starbucks. The Motley Fool has positions in and recommends Adobe and Starbucks. The Motley Fool recommends the following options: long January 2028 $330 calls on Adobe and short January 2028 $340 calls on Adobe. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
