Adobe Stock Undervalued, Analyst Says As It Breaks From Cautious Tech Pack, Lifts Guidance

Adobe Inc. (NASDAQ:ADBE) stock fell on Friday, erasing Thursday’s gains from its positive second-quarter earnings report.

Adobe reported quarterly revenue of $5.87 billion, up 11%, beating analyst estimates of $5.79 billion. The company reported quarterly adjusted earnings of $5.06 per share, beating estimates of $4.96 per share.

Digital Media revenue climbed 11%, and Digital Experience revenue increased by 10%.

Also Read: Adobe Q2 Earnings: Revenue Beat, EPS Beat, Raised FY Guidance, Continued Investments In AI Innovation

Adobe expects third-quarter revenue of $5.88 billion-$5.93 billion versus estimates of $5.87 billion. The company anticipates third-quarter adjusted earnings of $5.15-$5.20 per share versus estimates of $5.10.

Adobe raised expectations for full-year 2025 revenue to $23.5-$23.6 billion, up from prior guidance of $23.3 billion-$23.55 billion. Adobe also raised its full-year adjusted earnings guidance to $20.50-$20.70 per share, up from a previous guidance of $20.20-$20.50 per share.

Analysts are anticipating full-year revenue of $23.44 billion and full-year earnings of $20.36 per share.

Wall Street analysts rerated the stock.

Goldman Sachs analyst Kash Rangan reiterated a Buy rating on Adobe with a price forecast of $570.

Bank of America Securities analyst Brad Sills maintained a Buy rating on Adobe and raised the price forecast from $424 to $475.

Piper Sandler analyst Brent Bracelin reiterated an Overweight rating on Adobe with a price forecast of $500.

Goldman Sachs: Despite the quarter’s outperformance and +1% raise to fiscal 2025 Digital Media revenue, the stock is indicated -2% after hours, Rangan noted as investors contemplate the durability of Adobe’s double-digit topline growth and the tangibility of its AI revenue contribution.

Yet, the analyst remained encouraged by Adobe’s growth prospects given Adobe Experience Platform (AEP) and Apps subscription revenue growth of +40% Y/Y, Express proving a reliable engine adding 8,000+ businesses (+6x Y/Y), accelerating AI adoption, with Firefly App first-time subscribers +30% Q/Q.

Rangan said that Adobe’s AI strategy is evolving to play a larger role in the company’s growth narrative. First, AI has the potential to stabilize the core business by infusing value-enhancing capabilities across the product suite, enabling upsell opportunities into higher-priced SKUs such as CC Pro, the analyst said. Early evidence from the core CC suite is promising, which Rangan noted as a compelling proof point.

Further, as AI-standalone SKUs surpass a $250 million run-rate at an accelerated pace, the analyst noted the potential for incremental consumption-based revenue to become additive to topline growth. Rangan continues to view Adobe as well-positioned to benefit as Gen-AI spending moves from Infrastructure into Platform and Application layers.

Bank of America Securities: The second-quarter results and outlook reflect solid execution in a sluggish software demand backdrop, Sills noted. The analyst said that AI optionality for the business is very much intact. As per Sill, total revenue of $5.89 billion topped the outlook by ~$100 million, driven by a balanced upside across Digital Media and Digital Experience. The analyst said Digital Media ARR growth of 12.1% topped the outlook for 11%.

Much of the Digital Media strength came from Document Cloud, with strength in Acrobat AI Assistant, Premium, and Express, Sills said. He said that the Document Cloud business continues to lead the way with AI monetization. However, as per Sills, new offerings such as the Firefly app and Photoshop mobile are beginning to gain traction in the creative business. Also, the company added 8,000 new customers on Adobe Express, demonstrating solid top of funnel traction, the analyst said.

A fiscal 2026 outlook boost contrasts with most software companies, implying a more resilient, diversified business and good execution on growth initiatives, Sills said. While top-of-funnel conversion and AI revenue are not inflecting, they are building and likely to drive a gradually improving growth rate over time, the analyst said. Sills’s thesis is that the current attractive low valuation compensates for the wait for an anticipated improvement in growth.

Piper Sandler: Another quarter of steady execution, evident by the $78 million revenue beat on 11% constant currency growth (versus $57 million prior four-year average) and 9 cents EPS beat, appears ‘good enough’ for the large-cap value investor cohort, Bracelin noted.

However, the analyst said the more skeptical growth investor cohort could remain on the sidelines based on the implied fourth-quarter growth outlook that could further moderate to ~8%, with full-year ARR growth expected to moderate to 11% (versus 12% currently). Bracelin continues to see Adobe as one of the more attractive software franchises for value-orientated investors.

The analyst said Adobe’s AI book of business is a bright spot as AI-first products are tracking ahead of the $250 million ending ARR target for fiscal 2025.

Price Action: ADBE stock is trading lower by 5.69% to $390.15 at last check Friday.

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