A Pause on Advanced AI Is Wishful Thinking, But Adobe Stock Is a Buy Anyway

Artificial intelligence (AI) was the dominant investment trend since Nvidia's impressive earnings report in May 2023, with the market divided into companies seen as AI winners and those perceived as losers. Nvidia, led by Jensen Huang, became the world's most valuable company, while companies relying on man-hour models, such as software and IT services firms, faced risks due to AI automation.

Amid "AI-pocalypse" fears easing, Adobe stock showed a 15% decline from its recent highs. However, I believe Adobe is still a buy amid concerns about advanced AI development in the U.S. Companies would not pause advanced AI development due to distrust among AI developers, competition with Chinese companies, and the importance of the technology in the future.

Adobe's fiscal Q3 2026 earnings report showed a beat on both top and bottom lines, but the company lowered its revenue guidance, attributing it to forex headwinds. Adobe's remaining performance obligations grew by 8% year-over-year, and its AI revenue grew by 150% in Q3, but still represents a small portion of its overall revenue.

The company expects an 10.2% annualized recurring revenue growth rate for the current fiscal year. Despite leadership changes and a new CEO, I view Adobe as a buy at current levels, as the valuation has become more favorable after recent corrections.