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

Adobe released its fiscal first-quarter earnings report on March 12. Here’s Morningstar’s take on Adobe’s earnings and stock.

Key Morningstar Metrics for Adobe

• Fair Value Estimate
  : $380.00
• Morningstar Rating
  : ★★★★
• Morningstar Economic Moat Rating
  : Narrow
• Morningstar Uncertainty Rating
  : High

What We Thought of Adobe’s Fiscal Q1 Earnings

Adobe’s fiscal first-quarter revenue grew by 12.0% year over year as reported to $6.40 billion, while non-GAAP operating margin was 47.4%, both of which topped guidance.

Why it matters: Second-quarter guidance was slightly better than our near-consensus model contemplated on the top and bottom lines. This is the seventh straight quarter of top-line upside versus our model. Despite being left for dead, growth accelerated for total revenue, subscription revenue, and current remaining performance obligation, or CRPO, and artificial intelligence-related annual recurring revenue tripled year over year to more than $400 million.

• Countering this was a drag on ARR growth from freemium offerings and weaker stock photo sales. ARR decelerated to 10.9% growth year over year, in line with revenue growth in constant currency. Management expects reacceleration in the second half of the year.
• Beyond the financials and operational data, 62-year-old CEO Shantanu Narayen announced he is stepping down after 18 years at the helm but will remain until a successor is named. The search will include external and internal candidates.

The bottom line: We maintain our fair value estimate of $380 per share for narrow-moat Adobe and view shares as attractively valued for patient and risk-tolerant investors. While we made minor adjustments to reflect near-term guidance, our long-term assumptions remain steady.

• We recognize the sentiment around software, but we see no signs of the bear case unfolding for the industry in terms of AI disruption. Various vectors of acceleration for Adobe underscore that point. Still, heightened uncertainty from the AI threat drove our recent moat rating downgrade.

Coming up: Second-quarter guidance was ahead of our expectations, including sales of $6.43 billion-$6.48 billion, and non-GAAP EPS of $5.80-$5.85. Adobe reaffirmed full-year targets, including 10.2% ARR growth. Given upside in the quarter, we think the firm is on track to exceed fiscal 2026 guidance.

Fair Value Estimate for Adobe Stock

With its 4-star rating, we believe Adobe’s stock is moderately undervalued compared with our long-term fair value estimate of $380 per share, which implies a fiscal 2026 enterprise value/sales multiple of 6 times and an adjusted P/E multiple of 16 times.

We model a five-year revenue compound annual growth rate of approximately 9%. We model modestly decelerating growth in both the creative side and the customer experience side. Digital experience should benefit from price increases that should filter in over the course of several years as well as 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. The desire to consolidate vendors makes Adobe an obvious choice for marketing software solutions, and the fact that Adobe’s products are strong should help initially in what we believe is a large greenfield opportunity.

We model non-GAAP operating margin, which was 46% in fiscal 2025, to remain relatively flat over the next five years. Management continues to talk about pushing margins higher over time, but given that Adobe’s margins are already right near the top of the software group, we think expansion is possible but will be more incremental. We think AI growth within the mix could result in modest pressure on gross margins, which is likely to be offset by operational efficiencies, resulting in stable operating margins.

Read more about Adobe’s fair value estimate.

Economic Moat Rating

For Adobe overall, we assign a narrow moat arising from switching costs. By segment, we believe digital media and digital experience both have narrow moats based on switching costs. We believe Adobe’s moat will more likely than not allow the company to earn returns in excess of its cost of capital over the next 10 years. Given the unknowns surrounding the impact that AI will have on many software companies, we think it is inappropriate to assign a “near certainty” level of confidence to the return profile.

Read more about Adobe’s economic moat.

Financial Strength

We believe Adobe enjoys a position of excellent financial strength arising from its strong balance sheet, growing revenue, and high and expanding margins. As of November 2025, Adobe had $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. The firm’s risks 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 into the space. Figma and Canva are the two most prominent competitors, and both are young compared with Adobe. 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 categories 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.

There is a general fear that AI will either obviate the need for Adobe’s software altogether or at least pressure the seat count in the firm’s subscription. While this fear spans most software subscription models, it seems to be especially acute for Adobe.

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 Canva and Figma, weakening Adobe’s position.
• 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 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 Rachel Schlueter.