The Market Is Betting Against Adobe
Every image Midjourney has ever generated started with Photoshop. Not directly. But the millions of photos, illustrations, and designs
Every image Midjourney has ever generated started with Photoshop.
Not directly. But the millions of photos, illustrations, and designs that trained Midjourney’s model were made by people using Adobe’s tools. Photoshop. Illustrator. Lightroom. For 40 years, Adobe built the software that built the creative industry. Designers made work. That work became training data. And now the models trained on that work are coming for Adobe.
The stock is down 60% from its 2024 peak. CEO Shantanu Narayen announced in March 2026 that he is stepping down after 18 years. Quarterly revenue hit a record $6.4 billion. The stock fell 7.58% the same day.
Adobe AI, anchored by the company’s Firefly platform, is the response. Firefly has generated more than 24 billion assets since launching in 2023. It powers Generative Fill in Photoshop, creates images and video from text prompts, and now orchestrates entire workflows through conversation. Forty-five percent of Creative Cloud subscribers use it. Seventy-two percent of Fortune 500 design teams have integrated it.
None of that has stopped the bleeding.
$6.4 Billion, 7.58% Down
Adobe’s Q1 2026 numbers were the kind most companies would celebrate. Revenue up 12% year over year. Subscription revenue up 13%. Operating cash flow at a record $2.96 billion. The company bought back nearly $12 billion of its own stock in fiscal 2025, retiring 6% of shares outstanding.
Wall Street sold anyway.
Net new Digital Media ARR came in at $400 million. Analysts expected $450 to $460 million. The gap was $70 million, less than 1% of quarterly revenue. But that $70 million came from the stock content business, where users pay for licensed images. David Wadhwani, President of Creativity and Productivity, told analysts the decline was “playing out more quickly than we had planned for.”
The market is not pricing Adobe on today’s earnings. It is pricing Adobe on whether those earnings exist in five years.
Narayen Built This. Now He’s Leaving.
Shantanu Narayen became CEO in 2007. Revenue was $3.2 billion. He pushed the company from perpetual software licenses to Creative Cloud subscriptions in 2012. Customers hated it. Adobe’s stock dropped 8% the day of the announcement. By 2025, revenue had grown to nearly $24 billion. The subscription model that customers resented turned Adobe into one of the most successful software companies on earth.
On March 12, 2026, Narayen told employees he would step down once a successor is named. He stays as Chair of the Board. “This is not a goodbye by any means but a time for reflection,” he wrote.
The timing tells a different story. Adobe’s stock had already fallen 25% in 2024 and 21% in 2025. The AI narrative had taken hold. Investors wanted new leadership to fight a war Narayen did not start and may not know how to win.
Frank Calderoni, Lead Independent Director, is overseeing the CEO search. Internal and external candidates are being considered. Whoever takes over inherits $10 billion in annual free cash flow and a market convinced that cash flow is about to disappear.
Midjourney, Canva, Sora, Claude Design
The threats are coming from every direction.
Midjourney produces images many designers consider more striking than Firefly. Canva offers simpler tools at lower prices. OpenAI’s Sora generates video from text. Runway builds AI specifically for filmmakers. Each one takes a piece of Adobe’s market.
The sharpest cut came in April 2026. Anthropic launched Claude Design, a platform that generates wireframes, mockups, and pitch decks through conversation. No Photoshop. No Illustrator. Just describe what you want. Adobe’s stock dropped 1.5% on the news. Figma fell more than 6%.
Adobe built the tools that trained these models. Designers used Photoshop to create the images Midjourney learned from. The company spent four decades making creative work possible. That work became the dataset for its own disruption.
Partnering With the Enemy
Adobe’s strategy is not to fight. It is to embed.
Firefly now includes models from Google, OpenAI, Runway, Luma AI, and Anthropic alongside Adobe’s own. If users want Runway’s video generation, they can access it inside Firefly. If they want OpenAI’s image models, same. Adobe Marketing Agent is available in Microsoft 365 Copilot and in beta across Amazon Q, ChatGPT Enterprise, Gemini Enterprise, and Claude Enterprise.
In April 2026, Adobe announced a deeper partnership with Anthropic. Firefly capabilities will be accessible directly inside Claude. Users can ideate in Claude and execute in Firefly without switching tools. “The best creative work flows between thinking and making,” said Paul Smith, Anthropic’s Chief Commercial Officer.
Adobe is trading control for presence. If designers migrate to Claude, Adobe wants to be inside Claude. If marketers live in Microsoft 365, Adobe wants to be inside Copilot. The company that once owned the entire creative stack is becoming a layer inside other people’s platforms.
Getty Sued Stability AI. Adobe Sells Peace of Mind.
Midjourney’s training data came from the internet. So did Stable Diffusion’s. Getty Images sued Stability AI in 2023, claiming the company copied more than 12 million images without permission. The case remains unresolved. For a pharmaceutical company running regulated advertising or a bank producing customer communications, that legal uncertainty is unacceptable.
Firefly trains only on Adobe Stock images, openly licensed content, and public domain material. Every generated image carries Content Credentials, metadata recording how and when it was created. Adobe co-founded the Content Authenticity Initiative in 2019 to standardize this kind of provenance tracking.
Enterprise customers are buying the pitch. Adobe reported record bookings on deals over $1 million. Clients paying more than $10 million annually grew 25% year over year. Centene, Deutsche Bank, Heineken, Nordstrom, Paramount, Southwest Airlines, Target, and WPP all expanded their commitments.
The enterprise is holding. But the enterprise is not the whole market.
Freelancers Don’t Need Lawyers
A freelance designer choosing between Photoshop and Canva decides on price and ease of use, not indemnification clauses. A small business generating social media graphics does not need Content Credentials. A creator posting to TikTok does not care where the training data came from.
Mizuho downgraded Adobe to Neutral in April 2026, citing “intensifying competition” in prosumer and small business segments. The firm expects organic growth to slow to high single digits over the next two to three years. Margins may erode.
The structural problem is this: as generative tools improve, each unit of creative work becomes less valuable. A designer who once needed Photoshop for every task can now generate a first draft with a prompt and finish in minutes. The premium for professional skill shrinks.
Adobe’s bet is that professionals will pay for precision. Firefly inside Photoshop is more capable than standalone Firefly. Generative Fill is now one of the five most-used features in Photoshop. Casual users may drift to Canva. Adobe is betting the serious ones stay.
$25 Billion in Buybacks, 27% Down
On April 22, 2026, Adobe announced a $25 billion share repurchase program running through 2030. The stock rose 3.4%. It remains down more than 27% for the year.
Buybacks are not strategy. They are capital allocation. Adobe generates $10 billion in annual free cash flow and has few places to put it. The Semrush acquisition closed in 2026 for $1.9 billion, adding SEO tools to the content supply chain. Beyond that, no acquisition target is large enough to move the needle.
The buyback signals that management believes the stock is undervalued. They may be right. Adobe trades at 7.8x forward EV/EBITDA, down from 16.2x fourteen months ago. The P/E ratio has compressed from 21.5x to 10.2x.
If AI does not destroy the business, the stock is cheap. If it does, buybacks will not matter.
The Volume Explosion
AI is replacing some design work. Social media graphics that once required a designer now require a prompt. Product mockups that took hours take minutes.
But the volume of design work is exploding. Companies that once produced one version of an ad now produce fifty, personalized by segment and platform. Content updated quarterly is now updated daily. The bottleneck has shifted from creation to orchestration.
Adobe is betting this shift favours integrated platforms. A company producing thousands of assets per day needs workflow automation, brand compliance checking, and asset management. Firefly alone does not solve that. Creative Cloud, Experience Cloud, and the content supply chain together might.
The designer of 2030 probably uses AI to generate and spends more time on direction and quality control. Whether that designer pays Adobe is the $112 billion question.
One Side Is Wrong
Adobe’s next earnings report arrives in June. Net new Digital Media ARR above $450 million would suggest Firefly is offsetting stock content declines. A second consecutive miss extends the uncertainty.
The CEO search will conclude this year. The new leader inherits strong fundamentals, terrified investors, and a competitive landscape that did not exist three years ago.
Adobe spent four decades building the tools that made digital creativity possible. Those tools trained the models now threatening to make Adobe irrelevant. The company’s response is to partner with the threat, embed itself everywhere, and bet that enterprises will pay for safety while everyone else drifts away.
The stock market is betting against them. The customers are still paying.
One side is wrong.
Sources:
Fortune: Adobe CEO Shantanu Narayen Is Stepping Down After 18 Years
CNBC: Adobe CEO Shantanu Narayen to Step Down
Inc: Anthropic Takes Aim at Figma and Adobe With New Claude Design Platform
Creative Bloq: How Adobe Thinks Creatives Will Use AI in 2026
Quantumrun: Adobe Firefly Statistics And User Trends 2026
