Adobe’s AI Strategy: A Double-Edged Sword for Investors

While Adobe continues to post robust operational results, a significant divergence of opinion is emerging on Wall Street. The core debate centers on whether the company's aggressive artificial intelligence push will fortify its market dominance or, conversely, make it more vulnerable to disruption. This tension is highlighted by a major fund's complete exit from the stock, even as many analysts maintain bullish price targets.

Despite the strategic uncertainties, Adobe's recent financial performance remains solid. For the fourth quarter of its 2025 fiscal year (reported December 10), the company delivered results that exceeded expectations:

• Revenue reached $6.19 billion, representing year-over-year growth of 10.5%.
• Earnings per share (EPS) came in at $5.50, surpassing the consensus estimate of $5.40.

Notably, the stock is currently trading at a forward price-to-earnings multiple of approximately 19, a level considered discounted compared to its historical average. This lower valuation reflects heightened market risk perceptions, despite the consistent double-digit growth.

The "Disruption Trap" Thesis Sparks Institutional Exit

The primary source of investor skepticism was made clear in recent portfolio disclosures. The TCW Concentrated Large Cap Growth Fund, managed by Brandon Bond and Bo Fifer, completely liquidated its position in Adobe during the second half of the year. The fund's rationale, communicated to investors, pointed to a "Disruption Trap."

Their central argument is that Adobe's own AI tools, such as Firefly, are lowering barriers to entry for competitors rather than reinforcing the company's moat. By making professional-grade design more accessible, AI could potentially undermine Adobe's traditional, seat-based subscription model. The fund believes this "democratization" of creative tools provides an opening for platforms like Canva to encroach on workflows traditionally dominated by Adobe.

Adding to the selling pressure, another institutional investor, Norden Group LLC, reported reducing its Adobe stake by 24.4% in Q3 2025. Norden sold 3,435 shares and now holds 10,662 shares valued at approximately $3.76 million.

As of the last trading day before Christmas, Adobe shares closed at $352.98, marking a slight gain of 0.16%.

Should investors sell immediately? Or is it worth buying Adobe?

Adobe's Strategic Countermeasures: Acquisitions and Alliances

In response to these disruptive threats, Adobe's management is pursuing an offensive strategy. A key pillar is the acquisition of Semrush (SEMR), finalized on November 19, 2025. Adobe will pay $12.00 per share in cash, valuing the transaction at roughly $1.9 billion. The deal is expected to close in the first half of 2026.

This move aims to position Adobe as a provider of Generative Engine Optimization (GEO), expanding its remit from content creation to optimizing content performance and visibility. The goal is to build a broader revenue base.

Concurrently, Adobe is bolstering its Creative Cloud ecosystem through a partnership with Runway. The integration of Runway's Gen-4.5 AI video models is designed to retain sophisticated video creators on Adobe's platform and prevent migration to specialized, standalone solutions.

Legal Overhangs and the 2026 Outlook

Legal challenges remain a persistent risk factor. Adobe is still involved in the Lyon v. Adobe litigation concerning data usage for its SlimLM model. Furthermore, the company remains under scrutiny by the FTC regarding its subscription cancellation practices.

Looking ahead to fiscal 2026, Adobe has provided an EPS forecast ranging from $23.30 to $23.50. Management anticipates that Annual Recurring Revenue (ARR) will grow by more than 10%, driven by the integration of Semrush and the monetization of Firefly AI capabilities.

Analyst consensus largely remains in "Buy" territory, with average price targets hovering around $428. However, TCW's full exit sends a starkly contrasting signal, underscoring the clash between long-term investor skepticism and Wall Street's prevailing optimism. As trading resumes after the holidays, the $350 price zone is viewed as a critical support level, which will test the market's true conviction in the "Disruption Trap" narrative.