Adobe Faces Challenges Amidst Sluggish Growth in 2025
In 2025, the technology sector has struggled, particularly influenced by declines in major companies such as Apple, Microsoft, and Nvidia. Despite this difficult landscape, Adobe (NASDAQ: ADBE) has remained relatively stable, showing a slight increase year to date as of this report.
Adobe’s upcoming earnings report on March 12 will be crucial, as it may provide updates on fiscal first-quarter results and full-year guidance, prompting discussions on whether this growth stock is a worthwhile investment now.
Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Learn More »
Image source: Getty Images.
Recovering from a Challenging 2024
Adobe is currently outperforming many of its megacap tech rivals this year, although it faced a challenging 2024 where it lost over 25% of its value, while the sector as a whole gained 20.8%.
ADBE data by YCharts.
Despite developing innovative artificial intelligence (AI) software solutions, Adobe has yet to provide a clear monetization strategy comparable to industry leaders like Salesforce.
Meeting Investor Expectations
The company has introduced a suite of generative AI tools for images, vectors, designs, and videos and has enhanced its applications with AI assistants and embedded features. However, the specifics of how these advancements will contribute to financial performance remain ambiguous.
Current guidance for fiscal 2025 indicates projected revenue of $23.43 billion and adjusted earnings per share (EPS) of $20.35, reflecting only 8.9% revenue growth and 10.5% adjusted EPS growth year-over-year. While adjusted figures exclude items such as stock-based compensation, GAAP measures offer a clearer view of operational profit.
Given these projections, Adobe’s anticipated growth rate appears weak for a company at the forefront of AI developments. Furthermore, its revenue and earnings growth rates have lagged behind historical trends.
Declining Growth Rates
Over the past several years, Adobe has typically realized annual sales growth in the low double digits, with earnings also growing at a similar rate. The expected figures for fiscal 2025 imply the slowest annual revenue increase and potential minimum earnings growth the company has seen in a decade.
|
Metric |
Fiscal 2016 |
Fiscal 2017 |
Fiscal 2018 |
Fiscal 2019 |
Fiscal 2020 |
Fiscal 2021 |
Fiscal 2022 |
Fiscal 2023 |
Fiscal 2024 |
Fiscal 2025 Projections |
|---|---|---|---|---|---|---|---|---|---|---|
|
Revenue |
$5.85 billion |
$7.3 billion |
$9.03 billion |
$11.17 billion |
$12.87 billion |
$15.79 billion |
$17.61 billion |
$19.41 billion |
$21.51 billion |
$23.43 billion |
|
Revenue (YoY growth) |
21.9% |
24.8% |
23.7% |
23.7% |
15.2% |
22.7% |
11.5% |
11.4% |
10.8% |
8.9% |
|
Adjusted EPS |
$3.01 |
$4.31 |
$6.76 |
$7.87 |
$10.10 |
$12.48 |
$13.71 |
$16.07 |
$18.42 |
$20.35 |
|
Adjusted EPS (YoY growth) |
44.7% |
43.2% |
56.8% |
16.4% |
28.3% |
23.6% |
9.9% |
17.2% |
14.6% |
10.5% |
Data source: Adobe.
To develop its AI tools, Adobe has significantly increased its expenses, particularly in research and development. A temporary slowdown in earnings was expected during this transition. However, as the company enters its third year of AI implementation, it faces scrutiny regarding the technology’s ability to drive growth.
As concerns mount, investors might question whether AI will indeed benefit Adobe. Moreover, if competitors deploy AI more effectively, there is a risk Adobe could suffer from pricing pressures on its offerings.
During the December earnings call, management addressed its growth strategy, highlighting a focus on acquiring new users and enhancing engagement with its AI tools.
Evaluating Adobe’s Prospects Amid AI Growth Challenges
Despite facing downward pressure on its Stock price last year, Adobe’s current strategies show some promise. The company’s recent performance suggests that while investors may have lost patience with its AI initiatives, there are still important factors to consider.
Positive Aspects of Adobe’s Business
Adobe has experienced modest growth and maintains a high-margin enterprise capable of generating substantial free cash flow. While its guidance for fiscal 2025 may seem conservative, it sets a manageable benchmark for investors. The company has successfully decreased its share count by 9.7% over the past five years by offsetting stock-based compensation through stock buybacks. This commitment to returning value to shareholders is a key positive.
The Stock‘s valuation remains reasonable. With adjusted fiscal 2025 EPS projected at $20.35, the forward price-to-earnings (P/E) ratio stands at 21.9. If we consider the GAAP midpoint EPS of $15.95, the forward P/E is 28, which is not excessively high. Given this perspective, Adobe’s stock could be categorized as a sound long-term investment despite underwhelming AI performance thus far.
Investment Outlook for Patient Investors
For investors inclined toward fundamentally robust businesses, Adobe merits attention. The currently low valuation suggests the company doesn’t need to deliver extraordinary earnings growth to appeal to investors. Key to its success will be demonstrating that AI can serve as a competitive edge rather than a liability. If Adobe can effectively articulate and implement a strategy for accelerated AI-driven growth, its Stock may soon become an enticing proposition.
Is Now the Right Time to Invest $1,000 in Adobe?
Before making any investment decisions concerning Adobe, consider this:
The Motley Fool Stock Advisor team recently identified ten stocks they believe are currently more promising than Adobe. These selections may yield significant returns over the next few years.
For context, consider when Nvidia was highlighted on April 15, 2005. An investment of $1,000 at that recommendation would now be worth $677,631*!
Stock Advisor simplifies investing for its users, offering valuable portfolio-building guidance and insightful analyses, with new Stock picks released twice a month. Since its inception in 2002, the Stock Advisor service has outperformed the S&P 500 by more than four times.* Consider signing up to access the latest top 10 list.
See the 10 stocks »
*Stock Advisor returns as of March 3, 2025
Daniel Foelber holds no positions in any of the mentioned stocks. The Motley Fool has positions in and recommends Adobe, Apple, Microsoft, Nvidia, and Salesforce. The Motley Fool’s options recommendations include long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
The views expressed here are those of the author and do not necessarily reflect the views of Nasdaq, Inc.
