Where Could Adobe’s Next Growth Come From?

Adobe’s revenue grew 12% over the last year, slower than most of its big software peers. The share price appears to assume that its growth is fading. Over the last year, the stock fell 35%, while the S&P 500 returned 17.7%. Adobe (ADBE) trades at 12.5 times its earnings, against 22.1 for the index. Management pointed to a small, fast-growing line on its fiscal Q3 2026 call. Is that going to be enough? Where could Adobe’s next real growth come from?

Adobe’s Next Growth Could Come From Its AI Products

The small line is Adobe’s (ADBE) AI-first products. They are growing far faster than the rest of the company. Management said their ending annual recurring revenue, or ARR, exceeded $650 million in fiscal Q3 2026. ARR is the yearly value of the subscriptions customers hold at the end of a quarter. That figure grew more than 150% from a year earlier, against 11.2% for Adobe’s total ARR.

Adobe’s Firefly products are growing quickly. Ending ARR from the Firefly app and Firefly credit packs grew 40% from the previous quarter. Customers are also using more AI. Management said AI credit use accelerated from the previous quarter, across Creative Cloud and the Firefly app. Adobe’s AI products are growing fast, but they start from a small base.

How Big Are Adobe’s AI Products So Far?

Of every $100 of Adobe’s recurring revenue, about $2.40 comes from AI-first products. Total ending ARR was $27.5 billion in fiscal Q3 2026. At that scale, AI-first products are still an incremental part of Adobe.

Adobe as a whole is still growing, and a little faster than before. Revenue rose 12.0% over the last twelve months, up from 10.7% in the twelve months before that. The price appears to assume that this pace will not last. Adobe’s earnings multiple is in the bottom tenth of its own 10-year range.

Say that the fast-growing line keeps growing while Adobe as a whole holds its pace. Then the assumption of fading growth would be harder to square with the numbers.

What Would Show Adobe’s Free-User Push Is Paying Off?

Adobe chose to drive new user adoption rather than focus on pricing actions. The free-user push has a cost today. Net new ARR is the recurring revenue added during a period. A question on the fiscal Q3 2026 call put net new ARR down 36% to 37% from a year earlier.

Management answered that Adobe is balancing new customers against ARR growth, sending new users through its free tier first. That free tier is large. Monthly active users of Adobe’s free creative tools passed 100 million, up more than 70% from a year earlier.

Management said the slower RPO growth reflects its focus on adding new users through its free tier. So the first sign of a payoff would be faster growth from a year earlier in Adobe’s contracted revenue.

Contracted revenue shows up in remaining performance obligations, or RPO. RPO is revenue customers have signed for that Adobe has not yet booked. RPO grew 8% from a year earlier. A question on the same call noted this was RPO’s first single-digit growth since early fiscal 2023. Management said RPO steps up in the fourth quarter and then stays fairly flat for three quarters. So a fourth-quarter step-up on its own is the normal pattern, not proof. Growth from a year earlier is what matters.

Adobe MAX, the company’s creativity conference, is set for November in Miami Beach. Management said major Firefly and Creative Cloud releases are planned in the run-up to it.

Adobe’s AI products are its clearest new source of growth, but they are still a small part of the business. The fiscal Q4 2026 report will show whether RPO growth rises from the 8% it posted in fiscal Q3 2026. If it stays in single digits, the free-user push has not yet paid off.

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