Despite record revenue and rising profits, Adobe’s shares have been held back lately by investor concerns about how soon its high R&D spending will begin to pay off in a significant way. Still, we think the company is well positioned with a broad range of software facing limited competition. Adobe should also be able to keep raising its prices as it introduces new software upgrades.
The company’s appeal strengthens even more when considering its technological moat and customer loyalty within the creative professional community.
ADOBE INC. (Nasdaq symbol ADBE; www.adobe.com) operates through three main segments:
The Digital Media segment’s software includes Adobe Photoshop and Adobe InDesign. The Digital Experience segment provides analytics, social marketing, targeting, media optimization, and cross-channel campaign management software; It also offers premium video delivery. The Publishing and Advertising segment produces software that lets computer users create, edit and share documents in the popular PDF format; it also offers software to develop web applications.
In the three months ended May 30, 2025, Adobe’s revenue rose 10.6%, to a record $5.87 billion from $5.31 billion.
Earnings climbed 12.9%, to $5.06 a share from $4.48 a year earlier. Meanwhile, Adobe’s balance sheet is very strong: it holds cash of $5.7 billion.
AI integration positions Adobe at the forefront
Adobe spends a high 18% of its sales on research to stay ahead of the competition—with a focus on continuing adoption of AI-generated tools for its existing software—and its development of new offerings.
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Those offerings now include, for instance, the company’s own AI image generation tool called Firefly. Adobe has now incorporated the Firefly AI tool to generate images in its popular Photoshop software. It has also been embedded into most of its other software products, such as Acrobat, Premiere Pro, Animate and After Effects; all of those are used by creative professionals in a variety of fields.
Notably, while programs such as OpenAI’s Sora have captured the public’s imagination by transforming text prompts into images; they have not yet seen wide adoption by big corporations because of legal questions around the data used to develop those systems.
Adobe has sought to address those concerns with its core Firefly technology system. Firefly was specifically created with legal-to-use image data and which the company says can be used in commercial settings.
The new edition of Firefly was trained on many more images, which should improve the system’s ability to create photo-realistic images. The latest version will also include new ways to control and prompt the AI generation, such as uploading an image to replicate its style. Adobe will keep an internal record of the reference images that are uploaded in order to protect artists from infringement.
Notably, Adobe has branded Firefly as “commercially safe,” saying it will back up customers who may face copyright claims in court.
All in all, with an already-strong position in its key markets, Adobe’s sales should rise even higher in the future through the continuing adoption of AI-generated tools for its existing software.
Recommendation in Wall Street Stock Forecaster: Adobe Inc. is a buy.
