Adobe Drops 9% in 3 Months: Buy, Sell or Hold the Stock in 2026?

Adobe’s ADBE shares have dropped 8.8% in the past three months, underperforming the broader Zacks Computer and Technology sector’s return of 3.9%. The drop can be attributed to an uncertain macroeconomic environment, growing fear of an AI bubble and stiff competition from the likes of Microsoft MSFT, OpenAI, Alphabet GOOGL, Salesforce CRM, Midjourney and Canva. So, how should investors approach the Adobe stock this year? Let us find out.

Adobe’s Growing AI Push Steers Off Competition

Adobe’s prospects in fiscal 2026 and beyond will much depend on the success of its ongoing and future AI initiatives. Ongoing AI push is helping in advancing the company’s footprint among business, creative and marketing professionals. Adobe achieved more than 15% year-over-year growth in total monthly active users across solutions, including Acrobat, Creative Cloud, Express and Firefly in fiscal 2025. Adobe now targets annualized recurring revenue growth of 10.2% for fiscal 2026, driven by an innovative AI-powered portfolio, the expanding adoption of enterprises and a large market opportunity.

Adobe is benefiting from strong demand for AI-powered Creative Cloud Pro and Acrobat, as well as AI-first products, Firefly and Acrobat AI Assistant. Through the new conversational and agentic interfaces in Adobe Reader, Acrobat and Express, ADBE is offering improved experiences to business professionals and consumer groups. Firefly models and applications like Photoshop, Illustrator and Premiere, which integrate third-party models, are gaining traction among Creators and Creative professionals. New solutions like Premiere mobile with YouTube integration and Photoshop mobile are helping creators develop content anywhere. 

However, Adobe’s AI-related revenue is minuscule compared with Microsoft, Alphabet and Salesforce. Microsoft’s Intelligent Cloud revenues are benefiting from growth in Azure AI services and a rise in the AI Copilot business. Alphabet’s focus on infusing AI heavily across its offerings, including Search and Google Cloud, has been a major growth driver. Salesforce’s strategy of continuous expansion of generative AI (Gen AI) offerings is helping it tap growth opportunities.

In terms of price performance over the trailing 12-month period, Adobe has outperformed Microsoft but lagged Alphabet and Salesforce. While Alphabet shares have jumped 31.4%, Microsoft and Salesforce fell 11.1% and 3.9%, respectively.

ADBE Stock’s Performance

Rich Partner Base to Aid ADBE’s Prospects

Adobe is benefiting from an expanding partner base and integrations with leading AI ecosystems, including Amazon Web Services, Azure, Google Gemini, Microsoft CoPilot and OpenAI. Adobe’s Firefly has a rich partner base that includes models from Google, OpenAI, Black Forest Labs, Luma, Runway, Topaz Labs and ElevenLabs. The company has been offering creators a rich set of Gen AI capabilities that allow users to generate with Adobe and partner models. New products like Premiere mobile with YouTube integration and Photoshop mobile are also helping creators to produce their content from anywhere.

Adobe’s Business Professional and Consumer segment is benefiting from a strong portfolio and an expanding partner base (45 new partners added in the fiscal fourth quarter), including the likes of Bynder, Hootsuite and Sprout Social. In fiscal 2025, Acrobat web saw a monthly active user increase of 30% year over year. The strong adoption of Express continued in the education end market, with more than 70% year-over-year growth in students with access to Express Premium. Adobe’s expanded ad network partnerships with Amazon, Google, LinkedIn, Microsoft, Snap and TikTok bode well for marketing professionals.

Adobe Offers Positive Guidance for Q1 & FY26

For the first quarter of fiscal 2026, Adobe expects revenues between $6.25 billion and $6.3 billion, while non-GAAP earnings are expected to be $5.85-$5.90 per share.

Adobe expects fiscal 2026 revenues between $25.9 billion and $26.1 billion. Fiscal 2026 non-GAAP earnings are expected between $23.30 and $23.50 per share.

Earnings Estimate Revision Trend for ADBE’s Q1 & FY26

The Zacks Consensus Estimate for fiscal first-quarter earnings is pegged at $5.88 per share, up a couple of cents over the past 30 days, indicating 15.8% growth from the figure reported in the year-ago quarter. The consensus mark for revenues is pegged at $6.28 billion, suggesting 10% growth from the figure reported in the year-ago quarter.

Adobe Inc. Price and Consensus

 

Adobe Inc. price-consensus-chart | Adobe Inc. Quote

For fiscal 2026, the Zacks Consensus Estimate for revenues is pegged at $26.02 billion, implying 9.5% growth from fiscal 2025’s reported figure. The Zacks Consensus Estimate for earnings is pegged at $23.44 per share, unchanged over the past 30 days. The figure indicates 12% growth from fiscal 2025’s reported figure.

Adobe Shares Are Overvalued

Meanwhile, Adobe has a Value Score of C, which suggests a stretched valuation. In terms of price/book, Adobe is trading at 10.95X higher than the broader sector’s 10.73X, Microsoft’s 9.72X, Alphabet’s 9.61X and Salesforce’s 3.97X.

ADBE’s Valuation

Conclusion

Adobe’s continuing AI integration into its solutions, an innovative portfolio and rich partner base are positives for investors already holding the stock. However, a stretched valuation and stiff competition make the stock a risky bet in the near term for prospective investors. 

ADBE currently has a Zacks Rank #3 (Hold), which implies that investors should wait for a more favorable point to accumulate the stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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