Adobe’s Stock Fell 15% as Investors Are Uncertain of Its AI Direction

Despite posting record profits quarter after quarter, Adobe’s stock fell hard last week as investors appeared uncertain that the company’s AI strategy will result in future revenue.

Adobe’s stock fell 14.61% in the last five days despite a slight bump in the positive direction this morning, from a high of $549.93 on Wednesday to $468.24 at the time of publication this morning. It’s not the lowest Adobe’s stock has reached this year but it would be an inauspicious end to the company’s 2024 should it not recover before the new year.

The fall is also in contrast with the company’s profitability, which remains strong. On December 11, Adobe told investors that it had delivered record revenues in the 2024 fiscal year. It brought in $5.61 billion in the fourth quarter alone which is an 11% increase year-over-year. Digital Media brought in $4.15 billion, a 12% year-over-year growth while creative revenue grew to $3.30 billion, a 10 percent year-over-year. All of these reports would typically signal a stock price jump, but the opposite happened.

According to industry experts, investors believe there is a “fundamental disconnect over AI” at Adobe, namely between what management is saying versus what the numbers show.

“Investors are finding it hard to reconcile company’s bullish AI commentary with soft results and growth guidance,” Bernstein analyst Mark Moerdler tells MarketWatch. “We have said for a while that Adobe was a ‘show me story’ and has now become an ‘explain to me and show me story.’ It could take multiple quarters depending on how visible it is to investors that AI monetization will happen.”

Adobe has yet to monetize its generative AI offerings, although the pricing structure and systems are in place should the company decide to flip that switch. Adobe’s current plan is to build a user base for its AI tools before charging for them, a strategy that allows creative professionals like photographers to use Adobe’s AI tools as part of a normal Creative Cloud subscription, which some investors aren’t keen on since it involves waiting in order to see returns.

On the other side of the coin, users aren’t exactly always thrilled with the results from Adobe’s AI tools. The most recent update to its Firefly Generative AI system seemed to be a step backward, providing worse results than before and even coming in behind competitor offerings.

Adobe has been made aware of these issues but has not been able to provide an explanation — or a fix — to PetaPixel despite repeated inquiries. Needless to say, though, Adobe’s AI tools would need to get better before photographers would be willing to pay for them. Thus, Adobe is now stuck between investors clamoring for faster monetization and users who want better results.

Image credits: Header photo licensed via Depositphotos.