After Earnings, Is Adobe Stock a Buy, a Sell, or Fairly Valued?

Adobe released its fiscal fourth-quarter earnings report on Dec. 10. Here’s Morningstar’s take on Adobe’s earnings and stock.

Key Morningstar Metrics for Adobe Stock

• Fair Value Estimate: $560.00
• Morningstar Rating: ★★★★★
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: High

What We Thought of Adobe’s Fiscal Q4 Earnings

Adobe’s fourth-quarter revenue grew by 10.5% year over year, reaching $6.19 billion, while non-GAAP operating margin was 45.6%, both of which topped guidance. The initial 2026 outlook was slightly ahead of FactSet consensus on revenue but slightly light on profitability.

Why it matters: This marks the sixth consecutive quarter of revenue upside relative to our expectations. We continue to see positive signs of strength simmering below the surface for artificial intelligence adoption and new user growth.

• Both annual recurring revenue and remaining performance obligations outgrew revenue, which we view as a positive indicator for the next 12 months.
• On a year-over-year basis, ARR grew 11.5%, RPO expanded 12.8% year over year, and total monthly active users increased 15%, while revenue was up 10.5%. Generative credits were up three times sequentially.

The bottom line: We maintain our fair value estimate of $560 per share for wide-moat Adobe and view shares as attractively valued. While we made minor adjustments to reflect near-term guidance, our long-term assumptions remain steady.

• The two key controversies around Adobe center around emerging competition and fears for seat compression pressures arising from AI. To support the current stock price, revenue growth would have to be 400 basis points lower throughout our entire forecast, which seems highly unlikely.
• We continue to see a path for annual margin expansion coupled with solid but decelerating growth over the next five years, even if that can be uneven at times.

Coming up: Fiscal 2026 guidance was mixed relative to our expectations, with revenue slightly ahead and non-GAAP operating margin slightly light, while the first-quarter outlook was ahead on both measures.

• The one obvious blemish was that ARR grew nicely in the quarter and revenue guidance skewed positive, but the ARR outlook for fiscal 2026 calls for deceleration to 10.2% growth. We struggle to reconcile otherwise positive data points here.

Fair Value Estimate for Adobe Stock

With its 5-star rating, we believe Adobe’s stock is significantly undervalued compared with our long-term fair value estimate of $560 per share, which implies a fiscal 2026 enterprise value/sales multiple of 9 times, and an adjusted P/E multiple of 24 times.

We model a five-year revenue CAGR of approximately 9%. We model modestly decelerating growth in both digital media and digital experience over time. Digital experience should benefit both from price increases that should filter in over the course of several years and increasing penetration into an enormous market as defined by Adobe. We believe a relatively frictionless cross-selling opportunity exists for the company, as creative professionals are already steeped in Adobe products.

Economic Moat Rating

For Adobe overall, we assign a wide economic moat arising from switching costs. Based on the company’s segments, we believe digital media has a wide moat based on switching costs and digital experience has a narrow moat also arising from switching costs. We believe Adobe’s moat will allow the company to earn returns in excess of its cost of capital over the next 20 years.

Read more about Adobe’s economic moat.

Financial Strength

We think Adobe enjoys a position of excellent financial strength arising from its strong balance sheet, growing revenues, and high and expanding margins. As of November 2025, Adobe has $6.6 billion in cash and equivalents, offset by $6.3 billion in debt, resulting in a net cash position of $300 million. Adobe has historically generated strong operating margins. Free cash flow generation was $9.9 billion in fiscal 2025, representing a free cash flow margin of 41%. We believe that margins should continue to grind higher over time as the digital experience segment scales.

Read more about Adobe’s financial strength.

Risk and Uncertainty

We assign Adobe an Uncertainty Rating of High. It faces risks that vary by segment. Creative Cloud’s dominant market share over the last 25 years means a significant portion of high-margin revenue is at risk, however small that risk may be, if a competitor were to make inroads in the space. Figma and Canva are the two most prominent competitors, and both are relatively young compared with Adobe.

The dampening of cross-selling opportunities with digital experience would likely then be diminished, which would be problematic, as digital experience represents the larger growth opportunity over the next five years in our view. While Adobe is generally considered a leader in the various categories included under its digital experience umbrella, it did not create any of these categories and does not dominate them the way it does with Creative Cloud.

Read more about Adobe’s risk and uncertainty.

ADBE Bulls Say

• Adobe is the de facto standard in content creation software and PDF file editing, categories it created and still dominates.
• Adobe continues to introduce new solutions and features that defend its moat and drive innovation. Express has helped develop a funnel of new users while Firefly is a capable new visual content generation tool.
• Adobe is extending its empire in the creative world from content creation to marketing services more broadly through the expansion of its digital experience segment. This segment should drive growth in the coming years.

ADBE Bears Say

• Competition has increased in recent years with the rise of both Canva and Figma, so Adobe’s competition position is weakened.
• Digital experience is an emerging space and one that Adobe neither created nor dominates. Growth could be slower than we anticipate or margin expansion may not materialize.
• Growth has slowed meaningfully with the rise of both new competitors and generative AI. There is a fear that AI models can replace applications like Adobe’s or pressure the seat licensing model.

This article was compiled by Frank Lee.