Adobe Stock Slides as Investors Question AI Payoff Despite Strong Earnings

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Adobe Inc. (NASDAQ: ADBE) saw its shares tumble more than 7% on Friday, even after the software giant posted robust second-quarter earnings and raised its full-year outlook.

The selloff underscores a growing tension in the tech sector: investors are no longer impressed by AI potential—they want to see AI profits.

A Strong Quarter, But Not Enough

Adobe reported second-quarter revenue of $5.87 billion, an 11% year-over-year increase, and adjusted earnings per share of $5.06, beating Wall Street estimates.

The company also raised its full-year revenue forecast to $23.5 billion–$23.6 billion, reflecting confidence in its growth trajectory.

But the market didn’t cheer.

Shares dropped sharply in after-hours trading Thursday and continued sliding through Friday, closing at around $393, down from an intraday high of $407.50. The decline pushed Adobe’s year-to-date performance into the red, with the stock now down roughly 13% in 2025.

AI Optimism Meets Wall Street Skepticism

At the heart of the stock drop is a lingering question: Is Adobe’s AI bet paying off fast enough?

Adobe has aggressively integrated generative AI into its flagship tools like Photoshop and Premiere through its Firefly platform. It also rolled out Acrobat AI Assistant to bring intelligent automation to document workflows.

But while these tools are technologically impressive, analysts and investors want to see clear monetization.

“Adobe has done a fantastic job building consumer-ready AI tools, but Wall Street is looking for revenue acceleration, not just product innovation,” said Ben Reitzes, Managing Director at Melius Research.

A Changing Competitive Landscape

Adobe isn’t innovating in a vacuum. Competition from Canva, OpenAI’s Sora and ChatGPT integrations, and Google’s Gemini for Workspace is intensifying.

These players are not only gaining attention but also winning market share, particularly among younger or non-traditional creative users.

The pressure is on Adobe to prove it can maintain its dominant market position while transforming its revenue model to capitalize on AI-driven demand.

The Valuation Reality Check

Adobe’s valuation has also come under scrutiny. Once trading at a forward P/E of over 30x, the stock is now priced closer to 19x earnings, signaling a broader market recalibration.

“Growth stocks are being held to a new standard,” said Alex Zukin, Managing Director at Wolfe Research. “AI needs to be both transformational and accretive.”

This valuation compression, paired with macroeconomic concerns and geopolitical tensions in the Middle East, has made tech stocks—including Adobe—more vulnerable to negative sentiment.

What’s Next?

Despite the current slide, Adobe remains a cash-rich, profitable company with a loyal customer base and a clear roadmap for AI integration.

But short-term investor confidence will hinge on how quickly the company can convert innovation into recurring revenue.

“We are just at the beginning of realizing the full potential of generative AI in our products,” said CEO Shantanu Narayen during the earnings call. “Customer adoption has been strong, and we’re committed to driving measurable value through these capabilities.”

For now, though, the market is in wait-and-see mode.

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