Should You Buy Adobe After Its 40% Drop?

Should You Buy Adobe After Its 40% Drop? Marc Guberti, The Motley Fool Wed, June 24, 2026 at 5:35 PM GMT+2 3 min read ADBE NVDA Adobe (NASDAQ: ADBE) shares have plunged by more than 40% year to date. The stock trades below $200, a far cry from when the stock nearly touched $700 per share.

Artificial intelligence is on most investors' minds, especially with how easy it is to create images with AI tools. However, this fear has resulted in an unreasonably low valuation for a company that is still growing. Missed Nvidia in 2009?

This Rare Signal Is Flashing Again.   In 2009, a "Double Down" signal flashed for a little-known chipmaker called Nvidia.  For the first time in years, that same "Total Conviction" signal is flashing for a company 1/100th the size of Nvidia.

  Continue » Image source: Getty Images. Addressing the AI concern Software stocks sold off broadly amid concerns that artificial intelligence would replace software businesses, rendering them obsolete. Claude's Cowork demonstrated that its generative AI could replace software.

While it's a major AI innovation, it's easy for investors to overestimate how quickly new technology will move and whether existing software businesses will become obsolete. Adobe isn't the only software stock that has tumbled amid fears that SaaS companies may no longer be needed. Salesforce  and Workday  were both hit hard.

Those two stocks have also lost more than 40% year to date. While the surrounding narrative about Adobe and AI is that advanced technology can make Adobe obsolete, that is an extreme exaggeration that has driven the company's attractive 11 P/E ratio. Adobe's P/E ratio was in the mid-20s less than a year ago and comfortably held that position.

Adobe can more than double in valuation alone. Even the concerns about images are overblown. Getty Images  proved there's little to worry about by securing a long-term deal with OpenAI.

While AI is changing the digital landscape, investors are trading Adobe stock as if it were doomed to fail and wouldn't adapt. Adobe's fundamentals point to long-term growth Looking at Q1 results and the press release commentary makes the AI-fueled panic even more bizarre. Adobe delivered 12% year-over-year revenue growth in Q1, raised its full-year guidance, and cited "strong AI-driven demand across customer groups" as a major catalyst.

The company has a solid foundation, including $27. 1 billion in annual recurring revenue. The company also generates over $500 million in annual recurring revenue from its AI segment, a figure that has more than doubled year over year.

Adobe continues to post net profit margins in the mid-20s. Its business is gaining market share despite the stock's year-to-date losses. That mismatch suggests Adobe can be a compelling long-term opportunity at current levels.

Continued success with its AI products can strengthen the bullish narrative and reward investors who wait for the comeback story. Story Continues Should you buy stock in Adobe right now? Before you buy stock in Adobe, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the  10 best stocks for investors to buy now… and Adobe wasn’t one of them.

The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation,  you’d have $392,713 !

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  Don't miss the latest top 10 list, available with  Stock Advisor , and join an investing community built by individual investors for individual investors. See the 10 stocks » *Stock Advisor returns as of June 24, 2026. Marc Guberti has no position in any of the stocks mentioned.

The Motley Fool has positions in and recommends Adobe, Salesforce, and Workday. The Motley Fool recommends the following options: long January 2028 $330 calls on Adobe and short January 2028 $340 calls on Adobe. The Motley Fool has a disclosure policy .

Should You Buy Adobe After Its 40% Drop?