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Adobe Stock's Decade of Lag: What Investors Missed
10 Oct
Summary
- Adobe stock rose 123% in a decade, less than the S&P 500's 321%.
- Despite stock underperformance, Adobe's adjusted EPS grew eightfold.
- AI fears have impacted Adobe's valuation, driving stock down significantly.
Over the past decade, Adobe's stock has lagged behind the broader market, with a 123% gain compared to the S&P 500's 321%. This underperformance is primarily concentrated in the last five years. Despite the stock's struggles, Adobe's financial performance has been strong, with adjusted earnings per share (EPS) projected to grow approximately eightfold from fiscal 2016 levels to this fiscal year.
Much of the recent stock decline, including a 31% drop in 2026, stems from investor concerns about artificial intelligence impacting Adobe's subscription-based software model. While growth has slowed from its earlier pace, revenue continues to increase year over year, and annualized recurring revenue from AI-first products grew significantly in the fiscal third quarter of 2026.
The significant gap between Adobe's earnings growth and stock performance is attributed to a drastic decrease in its valuation multiple. Investors are now paying around 10 times expected earnings, a stark contrast to the higher multiples seen in 2016 and a peak in November 2021. This low valuation suggests market expectations of stalled growth, though current double-digit EPS growth indicates potential upside if the valuation multiple stabilizes.
