Adobe stock: An industry laggard despite record revenue growth

Adobe may still dominate as the go-to PDF viewer, but its once-unshakable market position is under siege by leaner, generative AI-driven competitors offering cheaper and faster solutions.

Adobe stock (ADBE) closed 0.9% higher at $509.14 on Friday. Despite this modest uptick, ADBE remains down over 14% year-to-date.

Adobe's decline is in start contract to broader market performance, with the S&P 500—America's key stock benchmark—up 24% and the tech-heavy Nasdaq 26% over the same period.

The software giant recently reported a third-quarter revenue increase of 11% year-over-year, reaching $5.41 billion, with its digital media segment contributing $4 billion.

Despite strong fundamentals, the market isn't as confident about Adobe's future—particularly its ability to compete with rapidly growing new AI entrants.

Canva, a standout rival, continues to rise with offerings like its Visual Suite and generative AI tool, Dream Lab. This has made Canva a staple for over 95% of Fortune 500 companies.

Though Canva’s features may lack the depth of Adobe’s Creative Cloud, its innovation pace, coupled with an entry price of $15 per month for Pro users, presents an enticing alternative to Adobe’s $60-per-month Creative Cloud subscription.

Adobe stock vs. AI companies

While Adobe’s fundamentals remain strong—posting a GAAP net income of $1.68 billion and a non-GAAP income of $2.08 billion—the stock isn't as appealing as it used to be.

The rise of AI presents a growing opportunity cost for investors holding legacy software companies like Adobe. The Morningstar Global Next Generation Artificial Intelligence Index has soared 35.6% this year, a sharp contrast to Adobe's 14% decline.

Meanwhile, Adobe’s generative AI offerings have struggled to gain traction in a crowded and fast-moving market, leaving analysts doubtful about its competitive edge.

Morningstar pegs the stock’s fair value at $635, indicating significant upside from current levels, but a “high” uncertainty rating underscores the hurdles to realizing that potential.

The company’s most pressing challenge is closing the gap between its established legacy business and the groundbreaking AI innovations reshaping the software industry.

Without a stronger foothold in generative AI, Adobe risks continued underperformance in an increasingly AI-dominated market.