NEW YORK, July 21, 2026, 12:07 (EDT)
Shares of Adobe Inc. NASDAQ:ADBE declined 3.0% to $227.77 by midday on Tuesday after Morgan Stanley NYSE:MS downgraded the software company to underweight and lowered its price target from $365 to $240. U.S. markets remained open; the intraday data were not final.
Adobe shares declined as the S&P 500 rose roughly 0.4% earlier. The stock is down close to 35% so far this year. Morgan Stanley’s price target is now just 5.4% higher than the current market value.
The key question for investors lies beneath the headline figures. Adobe’s adjusted earnings per share outpaced net profit during the last quarter, primarily due to a reduced number of shares outstanding.
The breakdown for the fiscal second quarter is as follows:
| Metric | Q2 FY2025 | Q2 FY2026 | Change |
|---|---|---|---|
| Revenue | $5.873 billion | $6.618 billion | +12.7% |
| Non-GAAP net income | $2.171 billion | $2.400 billion | +10.5% |
| Non-GAAP diluted EPS | $5.06 | $5.96 | +17.8% |
| Diluted shares | 429 million | 402 million | -6.3% |
Figures reported by the company were applied. Percentage change calculations are approximate.
The drop in share count accounts for roughly seven percentage points of the gap in EPS growth. This figure is based on Adobe’s disclosed figures and does not reflect underlying demand.
Adobe bought back 8.5 million shares over the quarter. The company still had about $27 billion available under its current repurchase authorizations, representing around 29% of its $91.7 billion market capitalization as of Tuesday. The authorization does not obligate the company to buy shares.
Valuation highlights the importance of that financial buffer. Adobe’s trailing earnings multiple is well beneath those of selected software industry peers:
| Company | Price | Day move | Trailing P/E |
|---|---|---|---|
| Adobe Inc. NASDAQ:ADBE | $227.77 | -3.0% | 13.0x |
| Salesforce Inc. NYSE:CRM | $169.65 | -2.4% | 23.5x |
| Autodesk Inc. NASDAQ:ADSK | $213.43 | -2.0% | 31.2x |
| ServiceNow Inc. NYSE:NOW | $102.23 | -2.4% | 60.1x |
Data was logged at approximately 11:51 a.m. EDT.
The median among peers stood at 31.2 times trailing earnings. Adobe’s figure was 58% less. Investors are pricing in execution risk for the company.
Morgan Stanley analyst Adam Wood noted the simultaneous changes “raise the bar for execution.” He referenced Adobe’s move toward offering more free entry-level products. Wood also pointed to changes in leadership and increased investment in AI. MarketWatch
Adobe is looking to appoint a new Chief Executive as Shantanu Narayen steps down. Steve Day has taken over as interim finance chief following Dan Durn’s departure in June. These leadership shifts are occurring amid the company’s focus on AI.
Adobe continues to see growth in its business. Revenue for the quarter increased 13% to $6.62 billion. Recurring revenue at period end climbed 12.5% to $27.10 billion, which included roughly $480 million contributed by an acquisition. Recurring revenue from AI-first products more than tripled, surpassing $500 million.
Creative freemium monthly users surpassed 90 million, representing an increase of over 70%. Day described the approach as “the right long-term strategy.” Management delayed previously planned Creative Cloud optimizations to prioritize expanding the user base.
Adobe projects its adjusted earnings per share for fiscal 2026 at $24.35 to $24.45. Based on Tuesday’s share price, the midpoint equates to a multiple of 9.3. This also suggests growth of 16.5% over fiscal 2025. Both numbers are derived estimates.
The present median target from analysts stands at $240. This provides limited margin for any additional execution errors. It also increases emphasis on Adobe’s ability to repurchase shares.
Risks persist. The conversion rate for freemium users could lag behind Adobe’s projections. AI-related expenses and changes in leadership might hamper execution. Share repurchases are not a substitute for sustainable recurring revenue expansion.
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