One Last Adobe Post | Hidden AI Revenue Growth

As I'm sure you've heard Adobe hasn't performed very well this year. The stock is now trading at an 8 year low after collapsing 50% in the last year alone. Given the historically shit stock movement, one would assume that Adobe's business fundamentals are collapsing and seeing decreasing revenue. Unfortunately for the SaaS bears, Adobe triple beat earnings (8th quarter in a row) and raised guidance for next quarter after delivering record revenue of $6.62B and a 13% YoY increase. What's interesting, besides it being sick as fuck that a 30 year old software company is growing faster with real revenue than your favorite rocket or electric car company, is the market disconnect.

Adobe is currently valued at a $77B market cap with a $195 share price. When you plug those regarded numbers into a reverse DCF (holding a standard 10% discount rate and 3% terminal rate against the \~$9.5B in cash flow), the market is pricing Adobe like free cash flow is negatively compounding 3.2% annually for the next decade. The reality is that Adobe grew cash flow at 10% YoY while being priced like it decreased \~3%. There is a 13% spread between what is actually happening and what the market has priced.

Adobe could face zero net operational growth over the next ten years, but because it doesn't need to plow capital back into physical factories; it has authorized $26.78 billion in stock buybacks. Adobe can organically retire 11% to 12% of its entire outstanding share count annually at these prices, causing per-share cash flow to surge even if the business just stands completely still.

While buybacks are cool, this isn't PayPal, and we're actually looking for company with growth potential and a future in 10 years. Growth is what has been happening, and it might just be accelerating too. This brings us to the hidden revenue that has flown under the radar. When software CFOs give guidance they are notoriously conservative. They calculate goals based on current contract renewals and linear historic trends, and make sure to leave out any curve ball earnings they can't exactly calculate.

The curve ball in Adobe earnings is AI-First ARR which the company began standalone reporting in Q3 2025.

In the most recent earnings, Adobe reported that AI-First ARR crossed $500M after MORE THAN TRIPLING YEAR OVER YEAR. If AI-First ARR triples again in the next 12 months, it would add $1B net new ARR. Assuming everything else in the Q2 earnings hit exactly as management guided (it always beats), that extra $1B would add 3.7 percentage points to Adobe's entire revenue.

For a mature software giant of this scale, an organic 3.7% acceleration from a single product line is massive. More importantly, it completely obliterates the market's reverse-DCF valuation logic. At a $77 billion market cap and a $195 stock price, the market is structurally pricing the business to shrink by -3.2% annually. If just one sub-segment of AI can inject an automatic \~3.0% to 4% growth tailwind into the model, the "expectations gap" widens into an absurdity (where is already is). It transforms a business that the market is treating as a race horse with a broken ankle into an absolute growth monster