This Beaten-Down Tech Giant Is About to Roar Back

ADBE -0.01% FIG +1.37%

Key Points

• Adobe is seeing improved monetization of its expanding AI ecosystem.

• The company's AI-first products surpassed its fiscal 2025 full-year target revenue by the end of the third quarter.

• Increased focus on GPU efficiency is helping drive Adobe's profit margins.

• 10 stocks we like better than Adobe ›

Once considered a high-growth enterprise software giant, Adobe's (NASDAQ: ADBE) share price is down over 38% in the past year. Investor sentiment took a dip after the company was forced to drop its $20 billion Figma acquisition effort due to failed negotiations and regulatory scrutiny. Investors are also concerned about the rise of competitors offering cheaper creative tools and the potential for generative artificial intelligence (AI) to erode the pricing power of its Creative Cloud suite.

This dynamic caused a significant valuation compression for Adobe, despite the company posting solid revenue and cash flows in the recent quarters. Here are two prominent factors working in Adobe's favor.

Improved AI monetization

While headlines mainly focused on the disruptive potential of AI, Adobe has quietly built a commercially robust AI stack. It includes AI-influenced offerings such as Creative Cloud Pro and Acrobat, and AI-first products such as Firefly, Acrobat AI Assistant, and GenStudio.

Adobe's AI-influenced products have already surpassed annualized recurring revenue (ARR) of $5 billion at the end of the third quarter of fiscal 2025 (ending Aug. 29, 2025), up from $3.5 billion in fiscal 2024. ARR of AI-first products has already crossed the full-year target of $250 million. Increasing adoption of AI offerings such as Firefly, Acrobat AI Assistant, and GenStudio in the digital content workflow is helping drive the company's seat usage as well as average revenue per user. The company expects AI-influenced ARR to rise to 100% of its business in future years.

Improving profitability

Although Adobe is investing heavily in AI initiatives, the company is targeting a non-GAAP operating margin of around 45.5% in the fourth quarter. Management is focusing on improving GPU training and inference efficiencies. The company is integrating AI in employee workflows to derive improved productivity. All these efforts translated into Adobe delivering record operating cash flows of $2.2 billion in the third quarter.

Hence, with robust fundamentals and financials and accelerating AI-driven growth, Adobe may see a solid rebound in share prices in the coming months.

Should you invest $1,000 in Adobe right now?

Before you buy stock in Adobe, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Adobe wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $588,530!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $1,102,885!*

Now, it’s worth noting Stock Advisor’s total average return is 1,012% — a market-crushing outperformance compared to 193% for the S&P 500. Don't miss the latest top 10 list, available with Stock Advisor, and join an investing community built by individual investors for individual investors.

See the 10 stocks »

*Stock Advisor returns as of December 1, 2025

Manali Pradhan, CFA 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.

This Beaten-Down Tech Giant Is About to Roar Back was originally published by The Motley Fool