Adobe's AI-First Products Hit $650M+ in Annualized Revenue, Up Over 150% YoY

Author: Maham Fatima Read Time: 4 minutes

ADBE: +1.37%

Record Q3 Results

On September 10, Adobe (NASDAQ: ADBE) reported record third-quarter revenue of $6.76 billion, up 13% year over year, and raised its full-year revenue and profit targets.

• Non-GAAP EPS: $6.13, up 15%
• GAAP EPS: $4.62, up 11%

A standout metric: AI-first ending ARR surpassed $650 million, growing more than 150% year over year.

The earnings call also brought a leadership change. Anil S. Chakravarthy is set to take over as CEO from Shantanu Narayen on December 1.

AI Finally Pays for Itself

Adobe’s AI tools are no longer just a demo. Key highlights include:

• Firefly ending ARR (spanning the Firefly app and credit packs) grew 40% quarter over quarter
• Acrobat AI Assistant doubled its monthly active users over the same three months
• Total monthly active users (MAU) across Adobe’s businesses surpassed 1 billion, up more than 20% year over year
• Creative premium MAU crossed 100 million, up more than 70%
• Business professionals and consumers MAU passed 900 million, up more than 25%

This user growth, concentrated in free and freemium tiers, is feeding the paid AI upgrades now showing up in ARR.

Financial Strength

• Operating cash flow: Record $2.52 billion for Q3
• Share buybacks: Approximately 9.5 million shares repurchased during the quarter; $24.55 billion still authorized for repurchases
• Full-year revenue target raised: $26.58 billion to $26.63 billion
• Non-GAAP EPS target raised: $24.45 to $24.50

Product and Enterprise Developments

• Adobe struck a deal to acquire Topaz Labs, whose AI enhancement models for image and video would integrate into Firefly and Creative Cloud
• Enterprise demand remained strong, with ending ARR growing more than 20% year over year at each of:
• Adobe Experience Manager
• Adobe Gen Studio
• Adobe Experience Platform

Forward Bookings Tell a Slower Story

Not every metric moved as fast:

• Remaining performance obligations (RPO): $22.16 billion, up 8% year over year — trailing both the 13% revenue growth and 11.2% growth in total ending ARR
• Current RPO: Grew 9%, also behind the topline

Interim CFO Steven Day flagged a foreign-exchange headwind heading into Q4, which partly offsets the benefit of the Q3 beat in the updated full-year guidance.

Context on AI-First ARR

Despite its 150% growth rate, AI-first ARR of just over $650 million remains a small slice of Adobe’s total ARR base of $27.50 billion.

The transition arrives at a pivotal moment:

• Chakravarthy takes the CEO seat on December 1, just as the company leans harder into an unproven agentic-software strategy
• The Topaz Labs deal still requires regulatory approval before contributing to results

Wall Street Isn’t Buying the Story

• Hedge fund positions: Trimmed from 86 to 81 quarter over quarter — a modest pullback, not a stampede
• Short interest: 4.89% of the float — enough for a real bear camp, but not a crowded trade
• Forward P/E: 9.22 as of September 11 — strikingly low given double-digit revenue growth and AI-first ARR up more than 150% year over year

This combination represents the central tension in the stock.

Where the Real Test Begins

Adobe heads into Q4 with:

• A raised outlook
• A fast-growing AI product line
• A new chief executive about to take the wheel

The freemium funnel driving users into Firefly and Express is beginning to convert into the paid AI revenue management has promised for years.

However, risks remain:

• Backlog growth trailing the topline
• A looming FX headwind
• An acquisition awaiting regulatory sign-off

These are reminders that execution must keep pace with the narrative. Chakravarthy inherits a business already leaning hard into agentic AI, with the freedom that comes from a forward multiple in the single digits.

While we acknowledge the potential of ADBE as an investment, we believe certain AI stocks offer greater upside.