Adobe’s Not Dead Yet: AI Surge, Big Beats, and a Bold FY26 Outlook Flip the Narrative

Adobe entered its fourth-quarter earnings release in an unusual position: the company is still one of the software industry’s most durable compounders, deeply embedded across creative and enterprise workflows, yet its stock has been trapped in a persistent downtrend since early 2024. The narrative has been dominated by concerns over competitive AI threats, slower growth in core segments, and questions about pricing power. With shares now bumping against a well-defined downward trendline near the $340 level, Adobe needed a quarter that reasserted its fundamentals and pushed back on the more bearish elements of the AI debate. The company delivered a clean beat across revenue, EPS, ARR, and cash flow, and while the results weren’t a breakout, they were strong enough to stabilize sentiment and keep the stock holding firm following the release.

Revenue for Q4 came in at $6.19 billion, ahead of consensus expectations of roughly $6.11 billion and representing 10 percent year-over-year growth both as reported and in constant currency. Subscription revenue rose 12 percent, underscoring the resiliency of Adobe’s recurring-revenue engine. GAAP EPS landed at $4.45 while non-GAAP EPS of $5.50 exceeded estimates by more than a dime. Operating performance was similarly steady: GAAP operating income was $2.26 billion and non-GAAP operating income reached $2.82 billion, both slightly ahead of expectations. Remaining Performance Obligations grew to $22.52 billion, with current RPO at 65 percent, signaling healthy forward visibility.

The core of Adobe’s business—its Digital Media segment—posted another record quarter. Digital Media revenue of $4.62 billion rose 11 percent year over year, fueled by continued strength across both major customer groups: Business Professionals & Consumers and Creative & Marketing Professionals. Adobe exited the quarter with Digital Media ARR of $19.20 billion, up 11.5 percent, a figure that exceeded internal targets and reflects solid new-user acquisition, strong retention, and early contributions from Adobe’s expanding suite of AI-powered experiences.

AI remains the strategic centerpiece of the company’s narrative, and Q4 offered meaningful evidence that Adobe’s generative and agentic initiatives are gaining traction. The Firefly ecosystem continues to evolve rapidly, with the new Firefly Image 5 model delivering higher-resolution outputs and more sophisticated prompt-editing capabilities. Adobe has also expanded its model partnerships, integrating more than 25 external models—including those from Google, OpenAI, Runway, Luma, and Black Forest Labs—into Firefly, Express, and Creative Cloud. This hybrid model approach is proving to be a differentiator: customers can combine Adobe’s commercially safe models with best-in-class partner models in a unified workflow.

One of the clearest monetization signals is the growth in generative credits. Adobe tracks heavy AI usage through this metric, and generative credit consumption grew approximately 3x quarter over quarter. As customers consume more credits, they increasingly upgrade into higher-tier Creative Cloud offerings or purchase Firefly credit add-ons, creating a clear path toward incremental ARR growth. Management described this as one of the most important early indicators that AI is becoming a sustained revenue driver rather than a promotional tool.

Adobe’s strategic push into agentic experiences also gained momentum. At Adobe MAX, the company showcased its work in atomizing Photoshop, Express, and Acrobat functionality into Model Context Protocol (MCP) endpoints. This allows Adobe’s tools to be embedded directly into conversational platforms like ChatGPT and Copilot, enabling users to trigger Adobe workflows through natural language. This shift positions the company as an orchestration layer for creative and productivity tasks across both enterprise and consumer environments. It also expands Adobe’s surface area beyond its traditional application suite, offering new monetization channels in the process.

The results from individual customer groups help clarify where Adobe is seeing the strongest traction. Business Professionals & Consumers saw subscription revenue rise 15 percent year over year, driven by Acrobat’s rapid adoption of AI Assistant features and new capabilities like PDF Spaces, which allow teams to collaborate conversationally across documents. Express also delivered another strong quarter as its AI Assistant expanded support for generative presentations and complex editing workflows. The introduction of Acrobat Studio—merging generative creation with document comprehension—has performed well, with nearly half of commercial Acrobat renewals upgrading into the offering.

Among Creators & Creative Professionals, Adobe’s strategy of combining deep-workflow power with AI augmentation continues to resonate. Firefly subscriptions grew sharply, first-time subs doubled quarter over quarter, and Creative Cloud saw heavy adoption of new AI tools such as reflection removal in Lightroom, Turntable in Illustrator, and smart masking in Premiere. Premiere Mobile, launched in partnership with Google and YouTube, marks a significant expansion into next-generation mobile video editing, particularly for Shorts creators. MAUs across Adobe’s freemium ecosystem surpassed 70 million, rising more than 35 percent year over year—a strong indicator that Adobe continues to attract new creators at scale.

Adobe’s FY26 outlook was a critical component of last night’s release, particularly given the stock’s technical posture and multi-year re-rating. Management guided to total ARR growth of 10.2 percent, representing roughly $2.6 billion in net new ARR for the year—its highest initial ARR guide ever. Total revenue is expected to land between $25.90 billion and $26.10 billion, while non-GAAP EPS is forecast between $23.30 and $23.50. Q1 guidance was encouraging as well, with revenue projected at $6.25–$6.30 billion and EPS of $5.85–$5.90, both ahead of consensus.

Analysts broadly viewed the quarter as a stabilizing moment. Wells Fargo highlighted Adobe’s top-line resiliency and its ability to counter bearish AI narratives. Wolfe Research emphasized the accelerating adoption of AI across all customer groups and pointed to a clearer monetization pathway emerging. RBC noted Adobe’s success in positioning itself as the central orchestration layer for digital assets, supported by deeper integrations and expanding enterprise use cases.

Despite these positives, the market response has been measured. Shares are holding steady, not breaking out—a reflection of both the technical overhead from the long downtrend and investor desire for a sustained acceleration in ARR and revenue growth. Adobe did its part: it delivered a clean quarter, affirmed FY26 momentum, demonstrated improving AI monetization, and reinforced its long-term strategic position. But the next move in the stock hinges on whether the company can convert its generative and agentic product strength into a definitive re-acceleration story.

For now, Adobe has bought itself breathing room—and perhaps a second look from investors who had written it off too quickly.