Key Takeaways:
- AI Product Momentum: Generative credits consumption surged 3x quarter-over-quarter as customers adopt AI features.
- Price Projection: Based on current execution, ADBE stock could reach $371 by November 2028.
- Potential Gains: This target implies a total return of 27% from the current price of $293.
- Annual Return: Investors could see roughly 8.7% growth over the next 2.8 years.
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Adobe Inc. (ADBE) just delivered record fiscal 2025 revenue of $23.77 billion while posting non-GAAP earnings of $20.94 per share. The company grew sales 11% year over year, demonstrating resilience as it transitions to an AI-first software platform.
CEO Shantanu Narayen is executing an aggressive AI integration strategy across three customer groups: Business Professionals and Consumers, Creators and Creative Professionals, and Marketing Professionals.
- Adobe achieved a record Digital Media ARR of $19.2 billion, up 11.5% year over year.
- AI adoption is accelerating across Adobe’s product portfolio.
- Monthly active users for creative freemium offerings surpassed 70 million in Q4, up 35% year over year.
- The company’s Firefly generative AI platform and custom model services are gaining traction with enterprises seeking to automate content production.
Despite strong AI momentum and expanding product capabilities, Adobe stock trades at $293, offering potential upside for investors who recognize the company’s transformation into an AI-powered creative and marketing platform.
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What the Model Says for Adobe Stock
We analyzed Adobe’s evolution into a comprehensive AI-driven platform serving billions of users across document management, creative production, and marketing automation.
The company is expanding beyond traditional software subscriptions. Adobe’s AI Assistant in Acrobat revolutionized document interaction, while Express brought generative AI to business users.
- Firefly introduced commercial-safe AI models with partnerships spanning Google, OpenAI, and other leading providers, giving customers unprecedented choice and flexibility.
- Adobe now serves diverse audiences with tailored offerings. Business professionals use Acrobat Studio for document workflows and content creation.
- Creative professionals leverage Firefly and Creative Cloud with integrated AI capabilities. Marketing teams deploy GenStudio for enterprise content supply chains, with custom models through Firefly Foundry.
Using a forecast of 8.8% annual revenue growth and 44.6% operating margins, our model projects the stock will rise to $371 within 2.8 years. This assumes an 11.9x price-to-earnings multiple.
That represents significant compression from Adobe’s historical P/E averages of 16.9x (one year) and 28.7x (five years).
The lower multiple reflects market concerns about decelerating ARR growth and competitive pressures in generative AI, despite Adobe’s strong execution and expanding AI product portfolio.
The real value lies in converting massive freemium user acquisition into paid subscriptions while scaling AI-powered enterprise solutions and maintaining industry-leading profitability.
Our Valuation Assumptions
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Our Valuation Assumptions
TIKR’s Valuation Model lets you plug in your own assumptions for a company’s revenue growth, operating margins, and P/E multiple, and calculates the stock’s expected returns.
Here’s what we used for ADBE stock:
1. Revenue Growth: 8.8%
Adobe’s growth centers on AI-driven user acquisition and monetization.
- The company achieved 15% growth in Business Professionals and Consumers subscription revenue, driven by Acrobat Studio adoption and Express expansion.
- Nearly 50% of commercial Acrobat renewals in Q4 upgraded to the new Studio offering, demonstrating strong customer reception.
- Creative Cloud is seeing increased engagement through generative credits. Consumption grew 3x quarter-over-quarter as users access Adobe and partner models for image generation, video editing, and design automation.
- Higher credit usage drives upgrades to premium plans and credit pack purchases.
Management expects Digital Media ARR growth to moderate slightly in fiscal 2026, with total Adobe ARR targeted at 10.2% growth or approximately $2.6 billion in net new ARR.
The pending $1.9 billion Semrush acquisition will strengthen brand visibility solutions, but isn’t included in current guidance.
2. Operating margins: 44.6%
Adobe is sustaining strong profitability while investing heavily in AI innovation.
Management targets approximately 45% non-GAAP operating margin for fiscal 2026, reflecting continued investment in AI product development and go-to-market expansion.
Adobe’s subscription model provides predictable cash flows while the company maintains pricing power with creative professionals.
The shift to consumption-based generative credits creates additional monetization opportunities as AI usage scales across the customer base.
3. Exit P/E Multiple: 11.9x
The market values Adobe at 12.5x earnings. We assume the P/E will compress to 11.9x over our forecast period.
Slowing ARR growth weighs on the multiple despite strong AI adoption metrics. Investors remain concerned about competition from standalone AI tools and whether Adobe can maintain its dominant position as generative AI democratizes creative production.
As enterprise AI solutions scale and Adobe demonstrates sustainable double-digit ARR growth, driven by improving conversion metrics from its expanding freemium base, the company should command a premium multiple.
The comprehensive platform spanning creativity, documents, and marketing provides competitive advantages that pure-play AI startups lack.
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What Happens If Things Go Better or Worse?
Software companies face technology disruption and changing customer preferences. Here’s how Adobe stock might perform under different scenarios through November 2028:
- Low Case: If revenue growth slows to 7.0% and net income margins compress to 34.3%, investors still see a 20.6% total return (4.0% annually).
- Mid Case: With 7.8% growth and 36.5% margins, we expect a total return of 50.8% (8.9% annually).
- High Case: If AI adoption accelerates and Adobe maintains 38.4% margins while growing at 8.6%, total returns could reach 84.1% (13.5% annually).
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The range reflects execution on AI product adoption, successful conversion of freemium users to paid subscriptions, and margin performance as the company scales generative AI infrastructure.
In the low case, competition intensifies, or AI feature adoption disappoints.
In the high case, enterprise AI solutions exceed expectations, and generative credit monetization accelerates faster than anticipated.
How Much Upside Does Adobe Stock Have From Here?
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All it takes is three simple inputs:
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- Operating Margins
- Exit P/E Multiple
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any stocks mentioned. Thank you for reading, and happy investing!
