Adobe Earnings Preview: Could ADBE Stock Finally Reverse Its Bearish Trend?

Adobe Earnings Preview: Could ADBE Stock Finally Reverse Its Bearish Trend?

Adobe shares have struggled over the past year, but with the company reporting earnings on Thursday 10 September, could improving earnings finally trigger a bullish reversal?

Adobe (NASDAQ: ADBE) has remained under significant selling pressure for an extended period. However, with its latest earnings report approaching, traders and investors will be watching closely to see whether stronger financial results can finally change market sentiment.

Adobe Earnings Expectations

Looking first at earnings, based on 12 estimates, Adobe's earnings per share (EPS) is expected to increase from $4.29 to $4.86, representing growth of approximately 13.3%.

Despite this expected earnings growth, Adobe's share price has moved sharply in the opposite direction. Over the past year, the stock has fallen from approximately $365.85 to $253.21, representing a decline of around 30.8%.

This divergence between improving earnings and a falling share price could suggest that investors have already priced a significant amount of negativity into Adobe's valuation. If earnings and guidance exceed expectations, this could potentially create greater room for an upside move.

However, a lower share price does not necessarily mean the stock is undervalued, and investors will need to consider why Adobe has been under pressure.

Why Has Adobe Stock Been Falling?

One of the biggest concerns surrounding Adobe has been the rapid development of generative artificial intelligence.

Investors have questioned whether AI-powered platforms could eventually reduce demand for Adobe's traditional products, particularly as competitors such as Canva and Figma continue expanding their capabilities. Adobe has responded by investing heavily in its own AI tools, including Firefly, but investors increasingly want evidence that these products can generate meaningful additional revenue.

There has also been increased uncertainty surrounding Adobe's management. Adobe recently announced that Anil Chakravarthy will become CEO, replacing long-serving chief executive Shantanu Narayen. The appointment contributed to further share-price weakness as markets assessed what the leadership change could mean for Adobe's longer-term strategy.

Going into the earnings report, traders should therefore monitor:

• Revenue and EPS growth, and whether Adobe beats analyst expectations.
• AI-related revenue and adoption, particularly whether Adobe is successfully monetising its growing AI user base.
• Forward guidance, which could prove more important than the headline earnings numbers.
• Creative Cloud growth, as investors look for evidence that competition from newer AI platforms is not damaging Adobe's core business.
• Management commentary, particularly around Adobe's strategy under its incoming CEO.

Adobe has previously delivered stronger-than-expected results, with its June quarter producing adjusted EPS of $5.96 versus $5.82 expected, alongside revenue of $6.62 billion versus $6.45 billion expected.

Adobe Technical Analysis

Looking next at the technical picture, Adobe currently has a relatively neutral-to-bearish RSI reading of around 39, suggesting that momentum remains weak without the stock being deeply oversold.

Adobe's share price is also trading close to an important area of support. If buyers begin entering around these levels following earnings, it could provide the foundations for a possible bullish reversal.

However, traders may want to wait for confirmation through improving momentum and a break above nearby resistance rather than relying on support alone.

Adobe Fundamental Analysis

Fundamentally, Adobe currently trades at a P/E ratio of approximately 17.48, which could make the shares appear relatively inexpensive compared with some large technology companies.

Its forward P/E ratio of around 27.48 is considerably higher.

If these figures are calculated using comparable earnings measures, a higher forward P/E could suggest expectations for lower future earnings relative to trailing earnings. However, investors should be careful when comparing trailing and forward P/E ratios, as the calculations can sometimes use different accounting measures.

The key question is therefore whether Adobe can demonstrate that its investments in artificial intelligence will eventually translate into stronger sustainable growth.

Outlook for Adobe Traders and Investors

Adobe's upcoming earnings report arrives at an important point for the company.

The stock has fallen by around 31% over the past year, despite expectations for continued earnings growth. That creates the potential for a significant reaction if Adobe can outperform expectations and provide stronger guidance.

For the bulls, evidence of growing AI revenue, resilient Creative Cloud demand and improving future guidance could help change sentiment and potentially trigger a recovery from current support levels.

For the bears, weak guidance, slower subscription growth or further signs that AI competitors are disrupting Adobe's traditional business could reinforce the longer-term downward trend.

Ultimately, Adobe's earnings numbers will matter, but its outlook could matter even more. With so much negativity already surrounding the stock, Thursday's earnings report could become an important test of whether Adobe's long-term bearish trend is finally beginning to change.