Adobe Drops 9% in 3 Months: Buy, Sell or Hold the Stock in 2026?

Core Insights - Adobe's shares have declined by 8.8% over the past three months, underperforming the broader Zacks Computer and Technology sector, which returned 3.9% [1] - The decline is attributed to an uncertain macroeconomic environment, fears of an AI bubble, and intense competition from major players like Microsoft, OpenAI, Alphabet, Salesforce, Midjourney, and Canva [1] AI Initiatives and Growth - Adobe's future prospects heavily rely on the success of its AI initiatives, which are enhancing its presence among business, creative, and marketing professionals [2] - The company reported over 15% year-over-year growth in total monthly active users across its solutions in fiscal 2025 [2] - Adobe aims for an annualized recurring revenue growth of 10.2% for fiscal 2026, driven by its AI-powered portfolio and expanding enterprise adoption [2] Product Demand and Competition - Strong demand for AI-powered products like Creative Cloud Pro and Acrobat is evident, with new features improving user experiences [3] - Despite this, Adobe's AI-related revenue remains small compared to competitors like Microsoft, Alphabet, and Salesforce, which are seeing significant growth in their AI services [4] Stock Performance - Over the past 12 months, Adobe has outperformed Microsoft but lagged behind Alphabet and Salesforce, with Alphabet shares increasing by 31.4% [5] Financial Projections - Adobe projects fiscal 2026 revenues between $25.9 billion and $26.1 billion, with expected non-GAAP earnings per share between $23.30 and $23.50 [11] - The Zacks Consensus Estimate for fiscal Q1 earnings is $5.88 per share, indicating a 15.8% growth from the previous year [12] - For fiscal 2026, the revenue estimate is $26.02 billion, suggesting a 9.5% growth from fiscal 2025 [13] Valuation Concerns - Adobe's valuation is considered stretched, with a Value Score of C, trading at 10.95X price/book compared to the sector average of 10.73X [15] - The stock faces valuation concerns amid strong market competition [7] Strategic Partnerships - Adobe is expanding its partner base, integrating with leading AI ecosystems such as Amazon Web Services, Azure, and Google [9] - The company added 45 new partners in the fiscal fourth quarter, enhancing its offerings for business professionals and consumers [10]