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Back in November, I wrote about why I believed Adobe (NASDAQ:ADBE) stock looked excellent value as we headed to the end of the year. Yet so far in 2026, the share price is down 23%. Some people say the company will be disrupted by AI. Here’s why I simply don’t agree.
Dissecting the news
Let’s first delve into the AI disruption story that’s swirling at the moment. Some investors worry that generative AI threatens Adobe’s core business (creative software). New AI tools from competitors (such as Anthropic and Canva) promise easier, cheaper creative workflows. The worry is that this could reduce demand for Adobe’s legacy subscription products, such as Photoshop. If this proves to be the case, it would have a serious negative impact on the company.
The other AI angle hurting the business right now is its ability to monetise innovations. Adobe is working hard on its own AI innovations, which it believes can boost profitability in the future. However, some are worried about the amount of capex being allocated here, given the limited results so far.
Banging the drum
Don’t get me wrong, these are risks going forward. The move lower in the share price shows these factors need to be taken seriously. However, the pessimistic view of the company’s long-term prospects is misplaced, I feel.
The latest quarterly results from December showed record revenue of $6.19bn, up 10% from the same period last year. If the company were really being overtaken by competitors and cheaper alternatives, the business wouldn’t be recording record figures like this.
The CEO commented that “by advancing our innovative generative and agentic platforms and expanding our customer base, we are excited to target double-digit ARR growth in full-year 2026.” So it’s clear the focus is on developing AI features to help not only retain but also expand customer acquisition. Of course, it remains to be seen if the expected growth in revenue materialises this year, but if it does, then I struggle to see how the stock won’t rally from the good news.
Finally, it now has a price-to-earnings ratio of 15.4. For comparison, the average ratio for the Nasdaq is 23.71. Based on this, I feel a lot of the bad news is already factored into the stock. It could be seen as undervalued relative to the tech-heavy index. So even if I’m wrong about my view, it’s hard to see how the share price could fall significantly from here, given the valuation.
Overall, Adobe isn’t a low-risk stock for investors. It clearly has some tough issues to navigate this year. However, I think the pessimism recently surrounding the company is really misplaced. If investors agree with my reasoning, it could be a good stock to consider adding to a portfolio.
