Adobe’s stock is down 11% today as investors struggle to make sense of its earnings report. The company has been investing heavily in AI like many other companies. However, investors have started asking questions about the ROI of these investments. As the company lowers guidance for 2025, the question remains: Why are expectations going down when AI was supposed to be the next big thing for the company?
Adobe has always enjoyed a comfortable position in digital creativity and production tools. Its digital offerings are popular among students, designers, developers, and enterprises. It has long been considered the leader in creativity tools, until recently when companies like Canva and Figma made it easier for people to complete their designs using drag-and-drop tools.
When AI came along, Adobe had a big challenge. All of a sudden its tools seemed to have become redundant. What designers would take years to design could now be generated with AI with a single prompt. Adobe’s stock has been gradually recovering from the post-generative AI decline. The company decided to invest in AI so that it could stay relevant as new technology took over. As far as execution goes, the company didn’t do a bad job of launching AI tools.
So what’s causing all the negative sentiment all of a sudden? The reason lies in the ROI of the company’s AI investments. It is a huge question mark on its future and so far, it has failed to answer it.
The earnings report is missing one key metric: Return on AI investments. In fact, it would be more accurate to say that the company does not even have a metric to measure those returns with. Investors can be very short-sighted, and they want to see visible improvements. AI offerings were supposed to improve the company’s subscriber base. They didn’t. The investments were supposed to aid the growth of a company that was otherwise reaching a stage of maturity. They didn’t. So what can the company do better during the next year so that 2026 is different?
That’s the million-dollar question that shareholders want answered. The company’s strategy will become clear with time. But with modest growth prospects, and reliance on share buybacks to reward investors, many shareholders are likely looking for a better investment.
Adobe ranks 13th on our latest list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 123 hedge fund portfolios held ADBE at the end of the second quarter which was 107 in the previous quarter. While we acknowledge the potential of ADBE as a leading AI investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as ADBE but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.
Disclosure: None. This article was originally published at Insider Monkey.