Adobe (ADBE +1.37%) continues to deliver solid revenue growth and generate huge free cash flow, but its stock still struggles to shake off the narrative that Adobe’s business is being disrupted by artificial intelligence (AI). Shares trade down more than 25% year to date, having been caught in this year’s software-as-a-service (SaaS) sell-off, and down more than 40% over the past five years.
Let’s take a closer look at Adobe’s results and prospects to see if anything can get the stock out of its funk.
Image source: The Motley Fool.
Consistent growth continues
Nothing suggests that Adobe is being disrupted by AI, with the company consistently delivering low-double-digit revenue growth, quarter in and quarter out. That continued for its fiscal first quarter of 2026, as it produced revenue growth of 12% year over year to $6.4 billion. This was above its previous forecast for revenue of between $6.25 billion and $6.3 billion. Annual recurring revenue (ARR), meanwhile, jumped 11% to $26.06 billion.
Adjusted earnings per share (EPS) climbed 19% year over year to $6.06, ahead of Adobe’s prior $5.85 to $5.90 outlook. The company also achieved a record operating cash flow of $2.96 billion in the quarter. The “creative & marketing professionals” customer group saw revenue increase by 12% to $4.39 billion. Revenue from the “business professionals & consumers” group jumped by 16% to $1.78 billion.
While the investor narrative has been that AI is going to hurt Adobe’s business, the company saw its AI ARR more than triple in the quarter, and it highlighted strong momentum for both Adobe Firefly and GenStudio. It noted that Firefly generative credit consumption surged 45% quarter over quarter, led by AI video and audio.
One area of weakness was in the smaller stock-photo business, which saw a steeper-than-expected decline. Adobe will look to improve this business segment by offering royalty-free stock images that can then be manipulated through the use of its AI solutions.
Looking ahead, Adobe reaffirmed its full-year guidance, with total ARR revenue slated to grow just over 10% this year. It also announced that its long-term CEO, Shantanu Narayen, plans to step down in a few months.
Is Adobe stock a buy?
Adobe stock is priced like it’s a dying business, not one growing its revenue by double-digit percentages and generating huge free cash flow. There is a bit of a transition going on with AI as it moves more toward a consumption-based model, but that’s just an evolution you’re likely to see throughout the software industry over time.
The stock is cheap any way you cut it, trading at a forward price-to-earnings (P/E) ratio of less than 11 times this fiscal year’s estimates, and a price/earnings-to-growth (PEG) ratio below 0.3 (positive multiples below 1 are considered undervalued).
There is no immediate catalyst to get the stock moving in the right direction. But at this point it’s so cheap, and the company is performing so well operationally, that I think at some point the market will wake up and realize that SaaS stocks are just way oversold — and Adobe will rally.
Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Adobe. 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.