ADBE: Future AI And Semrush Deal Will Reshape Cash Flow Profile

Analysts have reduced their Adobe fair value estimate by about US$7 to roughly US$578, citing a lower future P/E assumption and recent price target cuts that reflect concerns about near term growth momentum and competitive pressures.

Analyst Commentary

Recent Street research on Adobe has tilted more cautious, with several firms cutting ratings and price targets as they reassess expectations around AI driven growth, competitive intensity and near term execution.

One firm reduced its Adobe price target by US$60, highlighting concerns about growth momentum and competitive pressure in key creative markets, particularly among smaller customers, students and freelancers. Another moved to a neutral stance, citing decelerating Digital Media growth into FY25, questions around the durability of Adobe's moat and softer investor appetite for software names.

Analysts also pointed to an operating environment they see as challenging during the AI technology transition, along with guidance that they view as uninspiring for top line growth and operating margins. In their view, these factors could weigh on sentiment and keep the shares more range bound, even where valuations are described as undemanding.

Goldman Sachs assumed coverage with a Sell rating and a US$290 price target, arguing that while AI adoption could be a positive force for the broader software market over the next decade, value is currently accruing more at the low end of the market where Adobe has limited exposure and where high end seat count is under pressure.

Across these reports, the common threads are questions around near term growth drivers, competitive positioning in creative tools, and the timing of any potential reacceleration in demand linked to AI capabilities.

Bullish Takeaways

Some bullish analysts still describe Adobe shares as relatively inexpensive given the company's brand, product breadth and role in core creative and marketing workflows, even as they trim expectations.
Medium term opportunities around AI in Digital Media are flagged as intact by more constructive voices, who see scope for new tools and workflows to support future growth if execution improves.
Where analysts see valuation as undemanding and the business model as resilient, they argue that clearer product cycle execution or more convincing AI monetization could act as catalysts for sentiment.
Even in downgrades, bullish analysts acknowledge that a combination of disciplined cost control, stable margins and any pickup in creative demand could help close the gap between current pricing and their longer term views.

What's in the News

Adobe is reported to be close to acquiring Semrush for about US$1.9b, offering US$12 per Semrush share compared with Semrush's US$6.76 Tuesday close, with talks described as advanced but not yet final (Wall Street Journal).
Adobe issued fiscal 2026 guidance, targeting Q1 revenue of US$6.25b to US$6.30b with earnings per share of US$4.55 to US$4.60, and full year revenue of US$25.90b to US$26.10b with earnings per share of US$17.90 to US$18.10.
The company reported completing a large buyback program, repurchasing 44,200,000 shares for US$18.74b, including 7,200,000 shares for US$2.469b between August 30, 2025 and November 28, 2025.
Adobe expanded its AI footprint through a multi year partnership with Runway. Under this agreement, Runway becomes its preferred API creativity partner and Adobe is offering early access to Runway's Gen 4.5 video model inside Adobe Firefly, with workflows that connect into Premiere, After Effects and other Creative Cloud apps.
Adobe continued to build out Firefly and GenStudio, adding new Firefly models, custom brand specific models and AI assistants across Photoshop, Express and other apps. It also announced partnerships with Google Cloud, YouTube and others to bring third party AI models and distribution channels into Adobe's creative ecosystem.

Valuation Changes

Fair Value Estimate was reduced slightly from about US$585.69 to roughly US$578.38 per share.
The Discount Rate edged up marginally from about 8.57% to around 8.58%.
Revenue Growth was adjusted slightly higher from roughly 10.79% to about 10.89%.
The Net Profit Margin was trimmed modestly from around 31.05% to about 31.03%.
The Future P/E was lowered slightly from roughly 27.34x to about 26.94x.

Adobe's AI investments and new products, such as Acrobat AI Assistant, are set to double AI-related business by 2025, boosting growth.
Expansion in emerging markets and strategic partnerships are anticipated to drive revenue growth and improve margins through increased adoption and comprehensive solutions.
Adobe faces challenges in AI competition, market expansion, and economic uncertainty, which could affect revenue growth and necessitate tangible outcomes from AI investments.

Catalysts

About Adobe

Operates as a technology company worldwide.What are the underlying business or industry changes driving this perspective?

Adobe's investment in AI capabilities and the introduction of new standalone products such as Acrobat AI Assistant and Firefly Services are expected to drive significant revenue growth. The company projects its AI-related book of business to double by the end of the fiscal year 2025, influencing both the Digital Media and Digital Experience segments.
Emerging markets and expanding web and mobile offerings are contributing to Adobe's growth, with Creative Cloud's adoption showing strong momentum. This diversification is anticipated to bolster revenue and improve net margins as Adobe taps into a growing user base and increases price points in new regions.
The integration of GenStudio, Firefly App, and Adobe's Experience Platform into marketing workflows and campaigns is expected to enhance personalization capabilities. This integration should drive increased adoption among enterprise clients, boosting subscription revenues and contributing to long-term profit expansion due to efficiencies gained through software synergies.
Strategic partnerships and the development of custom models for large enterprise clients offer a pathway for Adobe to strengthen its enterprise offerings. The focus on providing comprehensive solutions for the content supply chain is expected to drive higher subscription revenues and improved customer retention rates.
Adobe's strategy of increasing operational scale through enhanced direct sales efforts and an expanded ecosystem of partners aims to capture business, education, and government segments more effectively. This effort is likely to drive revenue growth by increasing sales capacity and broadening Adobe's reach into new markets.

Adobe Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

This narrative explores a more optimistic perspective on Adobe compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
The bullish analysts are assuming Adobe's revenue will grow by 11.3% annually over the next 3 years.
The bullish analysts assume that profit margins will increase from 30.4% today to 36.5% in 3 years time.
The bullish analysts expect earnings to reach $11.4 billion (and earnings per share of $26.87) by about September 2028, up from $6.9 billion today. The analysts are largely in agreement about this estimate.
In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 25.8x on those 2028 earnings, up from 21.9x today. This future PE is lower than the current PE for the US Software industry at 36.2x.
Analysts expect the number of shares outstanding to decline by 3.63% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 8.52%, as per the Simply Wall St company report.

Adobe Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

The competitive landscape for AI models in the creative space is intensifying, which could impact Adobe's ability to maintain market share and drive revenue growth if competitors introduce superior or more cost-effective solutions.
Adobe's strategy to integrate and monetize AI across all products relies heavily on continued innovation and commercial safety, but any misstep could slow their adoption and affect earnings growth.
The macroeconomic environment remains uncertain, which could influence Adobe’s ability to drive consistent revenue growth across its diverse product lines, especially if partners and customers reduce spending on creative and marketing software.
While Adobe's push into web and mobile offerings is designed to capture new user bases, execution risks associated with this expansion could impact future revenue if they fail to attract or convert new users effectively.
The company's significant investments in AI and cloud integration must result in tangible revenue increases to justify the spending, or profit margins and overall financial performance could be adversely impacted.

Valuation

How have all the factors above been brought together to estimate a fair value?

The assumed bullish price target for Adobe is $605.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Adobe's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $605.0, and the most bearish reporting a price target of just $280.0.
In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $31.2 billion, earnings will come to $11.4 billion, and it would be trading on a PE ratio of 25.8x, assuming you use a discount rate of 8.5%.
Given the current share price of $354.06, the bullish analyst price target of $605.0 is 41.5% higher.
We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

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Disclaimer

AnalystHighTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystHighTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystHighTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.