Adobe delivered a quarter that was better than Wall Street expected.
The stock still fell.
That is exactly why the report matters.
Adobe reported fiscal third-quarter revenue of $6.76 billion, above the roughly $6.70 billion analyst consensus. Adjusted earnings were $6.13 per share, also above expectations.
Annual recurring revenue from AI-first products more than doubled year over year.
Yet Adobe shares fell roughly 1.9% in after-hours trading.
The reason is not that the quarter was bad. The reason is that investors are still unsure whether Adobe’s AI progress is strong enough to defend its long-term position against Figma, Canva and other AI-native creative tools.
What Did Adobe Report?
Revenue was $6.76 billion. Adjusted EPS was $6.13. Both exceeded expectations.
The company also highlighted strong growth in AI-integrated products.
AI-first annual recurring revenue more than doubled.
That is important because Adobe has been under pressure to prove that generative AI is not simply a threat.
The company needs AI to become a growth driver.
This quarter showed real progress.
Why Did the Stock Fall?
Fourth-quarter guidance was only slightly below what analysts wanted.
Adobe forecast revenue of $6.80 billion to $6.85 billion.
The midpoint, $6.825 billion, was just below the roughly $6.85 billion consensus.
That is a small gap.
But Adobe is not being valued like a normal mature software company.
The market is asking whether growth should accelerate as AI products gain adoption.
A modest outlook can therefore disappoint even after a good quarter.
Why Is AI Competition the Real Issue?
Adobe historically dominated professional creative workflows: Photoshop, Illustrator, Premiere and Acrobat.
Those products created strong switching costs.
Generative AI changes the structure.
Users can now create images, video, designs and marketing assets with natural-language prompts.
That reduces the advantage of complex interfaces.
Competitors such as Canva and Figma are also expanding AI features.
The question is no longer whether Adobe has AI. It does.
The question is whether Adobe’s AI is good enough to preserve pricing power and user loyalty.
What Does AI-First ARR Tell Us?
The fact that AI-first annual recurring revenue more than doubled is encouraging.
It suggests customers are willing to pay for new capabilities.
But investors still need more detail.
How large is the base?
What is the attach rate?
Are AI products incremental or replacing existing revenue?
Do they improve retention?
Do they raise average revenue per user?
Those questions matter more than growth percentages alone.
What About Leadership Changes?
Adobe is also in the middle of a major leadership transition.
Anil Chakravarthy is scheduled to become CEO on December 1.
Long-time CEO Shantanu Narayen will become executive chair.
The company also lost CFO Dan Durn earlier in the year.
David Wadhwani, president of the Creativity and Productivity business, is scheduled to leave later in September.
That is a lot of leadership change at the same time that AI is reshaping the market.
Investors therefore face both technology risk and execution risk.
Why Does the New CEO Matter?
Adobe’s next phase requires difficult strategic choices.
How aggressively should it price AI?
How much should it bundle?
How should it compete with lower-cost tools?
How should it defend professional users while expanding into casual creators?
The new CEO will need to balance growth with margin discipline.
What Is the Bull Case?
Adobe still has enormous advantages.
It owns industry-standard tools.
It has deep relationships with creative professionals and enterprises.
Its products are embedded in workflows.
It owns valuable file formats and ecosystems.
It can distribute AI features to a massive installed base.
If AI increases productivity without destroying pricing, Adobe can remain highly profitable.
What Is the Bear Case?
The bear case is that AI reduces the value of Adobe’s interface complexity.
If users can create professional outputs through prompts, some may not need the same expensive software stack.
Competitors can also enter workflows more easily.
That could reduce switching costs, pressure pricing and slow seat growth.
Why Is This Similar to the Broader Software Debate?
Adobe is a perfect example of the question facing enterprise and professional software.
AI can strengthen incumbents because they own data and distribution.
AI can also weaken incumbents because it reduces the importance of traditional user interfaces.
The outcome depends on which force is stronger.
Adobe’s quarter shows both sides.
AI revenue is growing, but investors still want more growth.
What to Watch Next
Watch AI-first ARR.
Watch Digital Media net new ARR.
Watch fourth-quarter revenue.
Watch margins.
Watch the December CEO transition.
Watch customer retention.
Watch competitive pricing from Canva and Figma.
Watch whether AI raises or lowers average revenue per user.
The central question is:
Can Adobe turn AI from a defensive feature into a large enough growth engine to justify premium software economics?