Adobe’s (ADBE) first quarter demonstrated that the rise of artificial intelligence is not decimating its business or revenue results, but investor fears persist.
The stock had dropped 6% during early Friday morning and is trading around lows not seen since early 2019. It had dropped as much as 8.4% during early trading, which marked its biggest intraday decline in a year.
The software giant also revealed that its long-time CEO, Shantanu Narayen, plans to step down from the position he’s held for 18 years.
Most financial analysts were impressed by the results and connected the drop to slightly slowing annual recurring revenue growth.
“The knee-jerk reaction of the stock is often to trade off of the ARR figure, a metric that is rarely-if-ever disclosed by mega-cap software companies, and investors often struggle when they assess this metric,” said J.P. Morgan analysts, led by Mark Murphy, in a Friday investor note. “In our view, 10.9% ARR growth on a $20B+ book of business is not aligned with the skeptical market narrative, which seems to assume that Adobe is being outright displaced by AI, but rather a business that continues to scale, further evidenced by a likely overlooked acceleration in subscription and total revenue growth, a point investors might not be appreciating enough considering how Software has traded over the last 6 months.”
J.P. Morgan reiterated its Overweight rating but reduced its price target to $420 from $520.
“Overall, while we acknowledge that Total ARR is a tick below consensus, we come away from the Q1 results constructive as some of the company’s freemium and AI products are gaining traction and driving MAU growth, which will ultimately drive ARR growth,” Murphy added.
Meanwhile, RBC Capital Markets maintained its Outperform rating and lowered its price target to $400 from $430.
“While headline and secondary metrics are pointing in the right direction, Total ARR decelerated to 10.9% or 11.2% when removing the Adobe Stock headwind,” said RBC analysts, led by Matthew Swanson, in a note. “Total ARR growth guidance for the full-year remains 10.2% which points to additional slowdown throughout the year. Management gave a number of positive secondary metrics around GenAI ARR, impressive MAU growth, increased consumption credit utilization and growth in RPO but a re-accelerating total ARR remains the primary focus for investors who are trying to figure out the net impact of GenAI.”
RBC said it is waiting for the upcoming Adobe Summit 2026 event for more details regarding ARR related to generative AI, partner announcements, and enterprise deployments. The Summit will be held from April 20-22 in Las Vegas.
Morgan Stanley retained its Equal-weight rating and reduced its price target to $365 from $425, but they also highlighted stabilization as revenue growth accelerated quarter over quarter, monthly average users increased by 50% year over year, and Firefly ARR surged 75% quarter over quarter.
“The loss of an iconic leader at a time of peak uncertainty around the future of software more broadly, and the positioning of Adobe specifically in this new GenAI world is bound to further investor uncertainty and anxiety around the shares,” said Morgan Stanley analysts, led by Keith Weiss, in a Friday note. “However, after steering the Adobe ship through rough seas over the past several years, several data points from the most recent quarter suggest the Captain may have brought this franchise into a safe harbor, from which it can continue to thrive.”
Finally, Barclays downgraded the stock to Equal Weight from Overweight and dropped its price target to $275 from $335.
“ADBE reported 1Q26 total NNARR of $400M, which was well below our estimate of $460M and consensus expectations of $450M, marking an uncharacteristic miss for the company on the new metric,” said Barclays analysts Saket Kalia and Joseph Pilleteri in a note. “The main reason for this was roughly a $70M shortfall in Adobe Stock, which is a subscription offering for customers to access stock images/video to use in their creative processes as more customers are relying on Generative AI tools like Adobe Firefly for text-to-image content.”
Competitor Figma (FIG) was down slightly during early market action on Friday.