Adobe Systems shares fell 7% on Friday as the company’s sales outlook for Q3 didn’t impress the investors, who were expecting higher growth to compensate for AI risk.
The falls come even as the company behind Photoshop and Illustrator reports a robust second quarter for fiscal year 2025 and raises its full-year outlook.
This highlights a persistent concern among investors: whether Adobe is truly winning the artificial intelligence race, or if its advancements are enough to fend off increasingly agile and AI-native competitors.
Strong Q2 results
Adobe announced impressive Q2 FY2025 results, with record revenue of $5.87 billion, marking an 11% year-over-year growth.
Non-GAAP earnings per share (EPS) also climbed to $5.06, a 13% increase from the previous year, surpassing analyst expectations for both top and bottom lines.
The Digital Media segment, which includes its core Creative Cloud and Document Cloud products, saw revenue rise by 11% to $4.35 billion, while Digital Experience sales grew 10% year-over-year to $1.46 billion.
The company also reported strong annual recurring revenue (ARR) of $18.09 billion, increasing by 12.1% from the previous year.
The company’s direct AI ARR from products like Acrobat AI Assistant and Firefly is on pace to exceed its initial $250 million target for FY2025, Shantanu Narayan, Chair and CEO, Adobe, said in the company’s earnings call.
AI perception
However, the positive numbers weren’t enough to quell investor apprehension.
The significant drop in share price suggests that while Adobe is making strides in integrating AI into its offerings and showing healthy financial performance, the market perceives its AI strategy as perhaps not aggressive or transformative enough to ensure long-term dominance.
There’s a palpable sentiment that Adobe might be losing the AI battle, with nimble startups and even tech giants like OpenAI and Google rapidly developing sophisticated generative AI tools for image and video creation.
Analysts have noted that while management expresses optimism, there’s a “disconnect” between their internal signs of success and the clear monetization metrics investors are seeking.
Gil Luria, a DA Davidson analyst, told Bloomberg that “Somehow Adobe has been snagged as an AI loser” and added that it’s a misunderstanding of the technology.
Adobe’s Firefly has been used to generate 24 billion pieces of content in June, increasing from 20 billion in March, according to CFO Dan Durn.
Expectations
Looking ahead, Adobe provided an optimistic outlook for the third quarter of fiscal year 2025, projecting total revenue between $5.875 billion and $5.925 billion.
For the full fiscal year 2025, the company raised its revenue forecast to a range of $23.5 billion to $23.6 billion, up from its previous estimate, and anticipates non-GAAP EPS between $20.50 and $20.70.
This revised guidance, while ahead of Wall Street’s consensus estimates, still seems to be met with a lukewarm reception.
Adobe’s shares had fallen 7.23% to $383.75 in Friday’s session.
The company’s shares are down 12% in the year so far.
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