Adobe’s AI Strategy Gains Traction Amid Market Scrutiny

Adobe’s stock advanced nearly 2% to close at $354.69 on Wednesday, buoyed by the company’s announcement of expanded AI-powered video capabilities. This move appears to signal that the software giant’s artificial intelligence strategy is more than just promotional talk, following a period of stagnant share performance.

The recent quarterly results, released on December 10, initially provided cause for optimism. For its fiscal fourth quarter of 2025, Adobe generated revenue of $6.19 billion, an 11% increase that surpassed market expectations. Adjusted earnings per share came in at $5.50, also beating forecasts.

However, the company’s outlook for fiscal 2026 tempered enthusiasm, pointing to a continuation of its current moderate growth trajectory. Adobe projected revenue in the range of $25.9 to $26.1 billion. For a firm positioning itself as an AI leader, this guidance struck some observers as lacking ambition.

Firefly Video: A Potential Catalyst?

At the heart of Wednesday’s announcement was the enhancement of Adobe’s Firefly AI video model. The company introduced new editing tools and, for the first time, began integrating third-party AI models. A crucial focus lies on creating monetizable workflows for enterprise clients. This addresses a persistent investor concern: the translation of AI innovation into tangible revenue streams.

The market’s reaction has been mixed. While Morningstar reaffirmed its fair value estimate of $560 per share, viewing Adobe as a continued beneficiary of the AI wave, another analyst downgraded the stock to "Hold" on December 17. The rationale cited a revenue growth rate stuck around 11%, with no clear sign yet of the anticipated AI-driven acceleration.

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

Valuation and Competitive Pressures

Since June 2025, Adobe’s share price has declined approximately 11%, trading in a narrow band between $340 and $360. The company faces mounting pressure from competitors like Canva and OpenAI, raising louder questions about the durability of its long-term competitive moat.

This pressure exists despite a fundamentally strong operational position. Adobe’s operating cash flow exceeded $10 billion for the 2025 fiscal year. With a price-to-earnings ratio of around 21, its valuation is considered moderate. The disconnect between robust cash generation and subdued share price performance underscores investor doubts about Adobe’s ability to defend its market position.

Strategic Moves and Future Milestones

Further strategic developments include the planned acquisition of Semruch, announced in November, intended to broaden Adobe’s footprint in the digital experience sector. The market is still awaiting clarity on how this acquisition will create value.

From a technical analysis perspective, the stock’s return above the $350 level is seen as a positive signal. The next significant resistance point lies near the 50-day moving average around $365. Investors are now looking for concrete data on user adoption of the new Firefly tools. The integration of Semruch and further advancements in text-to-video AI will be critical in determining whether Adobe can chart a course back toward its yearly highs above $460.