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Creative software giant Adobe (ADBE) is trading at $264.02 per share, approximately 29% below its 52-week high of $370.86, with its market capitalization shrinking to about $105 billion. Even more striking, the stock currently trades at just about 10 times the earnings analysts project for its next fiscal year — a valuation multiple typically assigned to companies with stagnant or declining profit growth.
Yet Adobe’s latest quarterly revenue set an all-time record. This divergence between price and performance has sparked intense market debate: Is the creative software giant entering a decline, or has it become one of the rarest bargains in the growth stock universe?
Based on the already-disclosed financial data, Adobe’s growth story is far from over. In the fiscal second quarter of 2026 (ended May 29), the company’s revenue reached $6.62 billion, up 13% year over year (11% on a constant-currency basis), setting a new historical record. This growth rate is broadly in line with the performance of the previous two quarters — on a constant-currency basis, the company has delivered 11% growth for three consecutive quarters — steady if not accelerating, yet remarkably resilient.
The growth is broad-based. Subscription revenue from the business professionals and consumers segment (built around Acrobat and other productivity tools) rose 16% year over year, while subscription revenue from the larger creative and marketing professionals segment grew 13%. The profit side also remained robust: adjusted earnings per share came in at $5.96, up 18% year over year, with GAAP earnings per share at $4.25. The company exited the quarter with annualized recurring revenue (ARR) of $27.1 billion (including approximately $480 million from the newly acquired Semrush), while remaining performance obligations (contracted revenue not yet recognized) stood at $22.3 billion.
Management remains optimistic about the outlook. On the strength of the second-quarter performance, Adobe raised its full-year revenue and adjusted earnings-per-share targets in June. The company also disclosed that annualized recurring revenue from its artificial intelligence-first products tripled year over year, exceeding $500 million. At the same time, Adobe continues to shrink its share count — the company generated $2.17 billion in operating cash flow during the quarter and repurchased approximately 8.5 million shares, representing about 2% of its outstanding shares.
However, the biggest reason behind the stock’s cheap valuation is generative AI itself. AI can now autonomously generate images, video, and design work, and if the direction of creative work shifts accordingly, demand for professional tools could contract. Some warning signs can already be gleaned from the data: full-year ARR growth is projected at approximately 10%, slower than revenue growth, and that figure includes the roughly $480 million contribution from Semrush, suggesting that organic growth may be slowing more than the headline number indicates.
In addition, the company recorded a roughly $70 million goodwill impairment on its publishing and advertising unit in the fiscal second quarter; its CFO departed in June, with a 20-year company veteran stepping in on an interim basis; and CEO Shantanu Narayen, after 18 years at the helm, announced in March that he will step aside once the board names a successor — each of these leadership changes represents a potential signal worth watching.
That said, AI is also delivering incremental opportunities for Adobe. The AI product line has already surpassed $500 million in annualized recurring revenue, having tripled year over year — at least for now, AI is contributing tangible sales growth to this software giant.
Taken together, a company delivering double-digit revenue growth, raising its earnings guidance, and buying back 2% of its outstanding shares in a single quarter should not typically command such a depressed valuation multiple. The current pricing reflects a pessimistic “something is about to break” expectation — but that expectation has yet to be validated by the reported numbers. The AI threat may eventually arrive, but it has not yet appeared in the financials. Against this backdrop, Adobe’s valuation looks increasingly attractive. For investors who can tolerate near-term volatility and are focused on the long-term landscape of the AI transformation, the current price level may offer a compelling entry point with a meaningful margin of safety.
