Adobe has little time left to prove to investors that it can become a winner in the era of AI.

The company's stock price has fallen by 7.7% this year, lagging behind the Index tracking the Software Industry (which has risen over 30% this year). Due to disappointing performance guidance last quarter, the Earnings Reports scheduled for release after the market close on December 11 face pressure. Adobe needs to demonstrate that it can achieve profits through its AI tools while facing increasing competition from generative AI platforms that can create images and videos based on user prompts.

"This is the quarter that decides success or failure, as it remains to be seen whether Adobe can achieve AI profitability and ward off competition," said Jamie Meyers, a Senior Analyst at Laffer Tengler Investments. He stated that although the company has listed Adobe Stocks as one of the 12 best investment ideas, the stock is currently in an 'observation phase' due to the ambiguity surrounding AI.

Adobe's stock price rose by 0.6% on December 11.

Adobe has been integrating its proprietary AI technology, Firefly, into products such as Photoshop and Illustrator. However, Adobe has been much slower to launch AI video products compared to its competitor, OpenAI's Sora service. The company stated last quarter that it has been focused on ensuring customers utilize its AI features rather than seeking to monetize these tools directly—this strategy is starting to test investors' patience.

"The company has invested heavily, but we are tired of not seeing worthwhile returns. If the negative tone resurfaces, it will take Adobe some time to shake off the feeling of being left behind," Meyers said.

The fourth quarter Earnings Reports are expected to show a Net income increase of over 13% and revenue growth of nearly 10%. However, the net addition of recurring revenue is expected to decline by 3.1%, marking the first decline in this key indicator in a year. Analysts also anticipate that Adobe's Creative Cloud division (which includes AI tools) will show weak performance.

Analysts at Citigroup have noted that market expectations for this Earnings Report are mixed. "The core Business is facing persistent revenue losses, while macro/competitive factors are exacerbating these losses," analyst Tyler Radke wrote in a report. Radke also lowered the target stock price, stating that given Adobe's focus on attracting more users for its AI tools rather than monetizing the technology, its stock price may remain within a Range.

At the annual meeting in October, Adobe discussed the pricing of its AI video tools, but Analysts have not yet considered it would bring significant improvements. General expectations for net income and revenue for 2025 have declined over the past quarter.

Other Software companies also face skepticism about their smooth transition to AI, with Earnings Reports showing mixed results. Salesforce's recent Earnings Reports seem to confirm its AI strategy, driving the company's stock price surge, while Oracle failed to meet high expectations despite the push from AI.

“Salesforce may be a precursor to Adobe because the company offers an AI product that is very useful to customers, and we certainly see the practicality of Adobe's AI products,” said Alonso Munoz, Chief Investment Officer of Hamilton Capital Partners. “If Adobe's pricing translates into growth this quarter and investors are satisfied with the results they see, then the stock price will be rewarded. If growth materializes, I believe the company will catch up with other AI Stocks.”

If Adobe can reassure investors about its long-term growth prospects, then according to its valuation, there is still room for the stock to rise. Adobe's current PE is less than 27 times, below the average of 32 times over the past decade. The stock is also cheaper than the Software Index, which has a PE of 38 times.

Nevertheless, investors still need to see concrete evidence of returns from AI.

“Given the slowdown in growth over the past few years, this lower valuation is reasonable at present,” said Myers of Laffer Tengler. “However, if we clearly see actual earnings from AI, it may lead to catch-up Trades, and we are optimistic but cautious about this.”