Adobe in 2026: Can AI and Strategic Moves Justify a Buy Despite Legal and Competitive Risks?

Adobe's 2026 outlook is a study in contrasts. The company stands at the intersection of explosive AI-driven growth and a thicket of legal and regulatory challenges. For investors, the question is whether Adobe's strategic bets in artificial intelligence and digital creativity can offset the risks posed by lawsuits, competitive pressures, and a high valuation.

AI-Driven Growth and Strategic Moves

Adobe's AI initiatives have become a cornerstone of its enterprise strategy. The Firefly AI model, trained exclusively on licensed content, has positioned the company as a leader in "legally grounded" AI tools. This differentiation is critical in an era where intellectual property disputes are increasingly common. For instance, Adobe's Firefly AI and Acrobat AI Assistant have driven generative AI credits consumption to triple in Q4 2025, with over 70 million monthly active users of its freemium AI tools.

The company's aggressive AI push is translating into financial momentum. Adobe's AI-influenced Annual Recurring Revenue (ARR) surpassed $5 billion in 2025, with AI-first ARR exceeding $250 million ahead of schedule. This growth is underpinned by product innovations like Firefly Boards and Firefly Creative Production, unveiled at Adobe MAX 2025, which streamline workflows for creators. Additionally, Adobe's $1.9 billion acquisition of Semrush in late 2025 has expanded its digital marketing and SEO capabilities, further diversifying its AI-driven offerings.

Legal and Regulatory Challenges

Despite these strides, Adobe faces mounting legal headwinds. A proposed class-action lawsuit alleges the company used pirated books from the contentious Books3 collection to train its SlimLM AI model. The case, tied to the SlimPajama dataset, mirrors similar lawsuits against Apple and Salesforce, highlighting a broader industry risk. Meanwhile, the FTC's ongoing lawsuit over Adobe's subscription practices-accusing the company of trapping consumers in complex, high-margin plans-remains unresolved.

These challenges are not merely legal but reputational. Adobe's emphasis on Firefly's legal compliance and indemnification for enterprise users is a strategic response, but the lawsuits underscore the fragility of its AI-first narrative. As one analyst notes, "Adobe's ability to navigate these legal storms will determine" whether its AI strategy is seen as a breakthrough or a liability.

Competitive Pressures and Market Share

Adobe's dominance in creative applications is being tested by AI-native platforms like Canva and OpenAI. While Adobe's 2025 AI and Digital Trends report highlights that 65% of senior executives view AI as a primary growth driver, competitors are leveraging open-source models and lower pricing to erode Adobe's market share. For example, Canva's AI tools have attracted small businesses and freelancers, segments Adobe has traditionally dominated.

However, Adobe's enterprise-focused approach offers a buffer. The company's Digital Media ARR reached $18.59 billion in 2025, with full-year revenue hitting $23.77 billion. This resilience stems from its ability to integrate AI into premium workflows, such as AI video avatars and agentic AI tools that learn users' creative styles. Yet, as budget cuts and shifting priorities cloud the broader AI market, Adobe's high valuation-its price-to-book ratio far exceeds peers like Microsoft and Alphabet-raises questions about sustainability.

Investment Outlook: Balancing Risks and Rewards

Adobe's 2026 projections are ambitious. The company forecasts ARR growth of 10.2% and revenue between $25.9 billion and $26.1 billion, driven by AI adoption and enterprise demand. However, these forecasts hinge on resolving the FTC lawsuit and avoiding further legal setbacks. Analysts remain divided, with price targets ranging from $270 to $605.

For long-term investors, Adobe's strategic moves-such as its partnership with OpenAI and focus on legally compliant AI-offer a compelling narrative. Yet, the regulatory and competitive risks cannot be ignored. As one report notes, "Adobe's AI strategy is a double-edged sword", it's both a growth engine and a potential liability.

Conclusion

Adobe's 2026 trajectory hinges on its ability to balance innovation with compliance. While its AI-driven ARR growth and enterprise focus justify optimism, the legal and competitive risks are significant. For investors, the key is to assess whether Adobe's strategic moves-its Firefly model, Semrush acquisition, and AI partnerships-can outpace the headwinds. In a market where AI is both a disruptor and a battleground, Adobe's long-term value will depend on its capacity to navigate these dual challenges with agility.