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On Thursday, Adobe Inc. (Nasdaq: ADBE) delivered impressive Q2 earnings ending May. However, given that this was the company’s 26th consecutive overperformance against analyst earnings-per-share (EPS) consensus from Zacks, at an average surprise of +2.53% over the last 12 months, the reception was muted.

Over the week, ADBE stock is down 7.35%, priced at $387 per share against the 52-week average of $471.57. For Q2, Adobe surpassed Zacks’ $4.96 EPS estimate at $5.06 per share, excluding one-time expenditures and costs.

In total, the content creation company generated $5.87 billion revenue, of which $5.64 billion came from subscriptions. This is an uptick of 10.6% from the year-ago quarter. For the full fiscal year 2025, Adobe now expects even greater gains, having increased its non-GAAP EPS estimate to a range of $20.50–$20.70, up from $18.42 in FY24. As existing ADBE shareholders locked in profits, should investors buy the ADBE dip?

Relevance of Sentiment

In late 2024, when ADBE stock was priced at $446, we maintained that the Terms of Use controversy related to rights on users’ content to train AI was of little significance. Across its suite of image and video manipulation products, Adobe still maintains a dominant position at ~61% market share according to 6sense.

For this creativity niche, it is extremely important to have large data sets to create a robust, useful AI layer, and Adobe has that deep pool. After all, it is no coincidence that Google’s Gemini 2.5 and Veo 3 are now top performers in the AI arena.

Casual users may prefer AI-powered image and video generators, without ever touching products like Photoshop and After Effects, but they lack consistent control. For serious content creation, it is companies like Adobe that will benefit from AI by offering granular control of the content.

In addition to having its own Adobe Firefly content generator, which is trained on both public domain content and licensed material instead of just scraped web data, Adobe’s AI embeds directly into industry-standard apps.

Namely, users can now more easily replace backgrounds or add objects, or even extend images contextually within layers. Such precision editing is light years away from largely unproductive AI generators that force users to constantly re-prompt in the hopes of getting a useful result.

In short, while it may seem that Adobe suffered reputational damage from influencers, the backlash should be perceived in the same manner as when Gemini first launched, being prone to replacing people of European descent with those originating from sub-Saharan Africa.

At the end of the line, financial results speak for themselves, as the company generated $581 million more revenue this quarter than in Q2 2024. In the Digital Experience segment, the subscription growth was 11% year-over-year, while in the enterprise segment, Business Professionals and Consumers Group, subscription revenue rose 15% YoY.

Adobe’s Prospects and Price Targets

After dealing with client data sovereignty by tweaking its ToS, Adobe appears to have exited the controversy with minimal long-term damage. The company’s price-to-earnings (P/E) ratio is currently at 25.04 against the average P/E of 34.73 in the Internet Content & Information sector.

With a consistent gross profit margin within the 88-89% range, institutional equities research firm, Evercore ISI, recently reiterated its ADBE price target of $475 per share. In aggregate, according to WSJ, the average ADBE price target is $487.11 per share.

Zero analysts are on the side of selling ADBE shares at this point. The bottom estimate is $280, while the ceiling price target for ADBE stock over the next 12 months is $630 per share.

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