The Stock of Adobe Has Been a Laggard in AI. Its Decline is Exacerbated by a Ho-hum Earnings Forecast

Adobe Systems Inc. shares declined in after-hours trading on Wednesday following a weaker-than-expected earnings forecast, as Wall Street remains concerned about the company’s ability to monetize artificial intelligence (AI).

‍

Despite efforts to address these concerns by disclosing AI-related bookings, Adobe’s revenue outlook for the upcoming quarter fell short of analysts' expectations, adding to investor unease.

‍

The software giant, which has faced growing scrutiny over its AI strategy, revealed that it ended the fiscal first quarter with more than $125 million in bookings from its new AI-focused standalone products and add-on services. In a statement, Adobe’s Chief Executive Shantanu Narayen expressed optimism about the company’s future, emphasizing that AI is driving growth in the creative economy. He also reaffirmed Adobe’s financial targets for the fiscal year 2025.

‍

Adobe’s total revenue for the fiscal first quarter reached $5.71 billion, slightly exceeding Wall Street’s consensus estimate of $5.66 billion, according to FactSet. Earnings per share also surpassed expectations. However, the company’s guidance for the fiscal second quarter presented a mixed picture.

‍

For the second quarter, Adobe projected revenue between $5.77 billion and $5.82 billion, aligning closely with analysts’ forecasts of $5.80 billion. However, its earnings-per-share outlook on a GAAP basis, ranging from $3.80 to $3.85, fell below Wall Street’s current estimate of $3.91.

‍

The disappointing forecast weighed on Adobe’s stock, which dropped over 2% in after-hours trading. This decline adds to the company’s broader struggles, as shares have already fallen approximately 1.3% year-to-date.

‍

Investor sentiment toward Adobe remains cautious, particularly regarding the company’s ability to capitalize on the growth of generative AI. Stifel Research analyst J. Parker Lane highlighted these concerns earlier in the week, noting that many investors remain skeptical about Adobe’s capacity to generate meaningful revenue from AI in the near term.

‍

In addition to its AI disclosures, Adobe’s core digital-media business delivered slightly better-than-expected results. Revenue from digital-media sales reached $4.23 billion, exceeding Wall Street’s projection of $4.19 billion.

‍

The company also reported net income of $1.81 billion for the fiscal first quarter, with adjusted earnings per share of $4.14. This figure was slightly above analyst expectations, as the consensus forecast on a GAAP basis was $3.90 per share, according to FactSet.

‍

Despite meeting or exceeding some key financial metrics, Adobe’s cautious outlook for the second quarter has amplified concerns about its future growth trajectory, particularly in the competitive and rapidly evolving AI space.

‍

Adobe’s management remains confident in its long-term strategy, emphasizing the potential of AI to drive future revenue growth. However, investors are seeking clearer signs that the company can translate its AI innovations into sustained financial gains.

‍

As the competitive landscape for AI-driven software intensifies, Adobe’s ability to deliver on its growth promises will be closely watched in the coming quarters.

‍