Software stocks cannot seem to catch a break. On March 12 one of the largest software providers in the world, Adobe (ADBE +0.93%), reported strong growth, with revenue up 11% in constant currency. Despite these solid results, the stock sold off on continued fears about artificial intelligence (AI) disruption, and the retirement of longtime CEO Shantanu Narayen.
Here’s what Adobe’s results mean for the AI narrative, along with two other indicators investors need to watch for in the S&P 500 index next week.
Today’s Change
(0.93%) $2.34
Current Price
$254.20
Key Data Points
Market Cap
$103B
Day’s Range
$252.14 – $258.91
52wk Range
$244.28 – $422.95
Volume
6.5M
Avg Vol
5.5M
Gross Margin
88.77%
Strong growth, continued AI fears
If you look at Adobe’s latest financials, it’s hard to find anything to complain about. Revenue grew 11% in constant currency, with business/consumer subscription revenue up 15% and creative/marketing revenue up 11%. Profits looked solid, with an operating income of $2.4 billion, up from $2.1 billion in the same quarter a year ago.
The company is even using its massive earnings power to repurchase stock aggressively. The number of shares outstanding decreased by 11% over the last three years.
So what is the problem? Why is the stock falling? Well, for one thing, its longtime CEO retired out of the blue, which Wall Street never likes.
But more important in the long term is the continued narrative that AI is disrupting the software industry as a whole. Despite posting consistent revenue growth, Adobe is considered a potential AI loser, no matter how strong its financials look today. Investors are worried about what might happen in 2028, rather than next quarter.
Image source: Getty Images.
A software rebound?
Many software stocks have begun to rebound ever so slightly in March. This happened after industry stalwarts like Salesforce and Constellation Software reported strong earnings. Sure, there’s still a lot of pessimism from Wall Street, but it’s possible that these stocks found a bottom in late February.
More important are the capital-return programs for companies like Adobe and Salesforce. Salesforce management has authorized a $50 billion stock repurchase program that could significantly reduce its outstanding shares. This is attractive at lower trading prices because the more a company’s shares outstanding can be reduced, the higher its earnings per share (EPS) will be. Generally, over the long term, a stock price follows EPS growth.
Even if the software industry rebounds, this is what investors in companies like Adobe and Salesforce should focus on in the long term.
ADBE Shares Outstanding data by YCharts.
Looking at other indicators
If you are truly fearful of AI disrupting everything in the software market, there are a few signals you can watch out for this upcoming week.
First, on March 18, Micron Technology will report earnings. It is a leading player in the memory-chip market, which has seen significant growth in demand driven by the rise of AI tools such as ChatGPT and Claude Code. If Micron guides for even more growth in 2026 and says demand continues to grow, that could be a negative indicator for software stocks, as it suggests more enterprises are experimenting with ways to replace existing software tools, such as Adobe’s.
Second, consulting business Accenture reports earnings on March 19. This could be a direct indicator of the software-disruption narrative, given that Accenture works directly with enterprises to deploy Adobe’s software suite. Specifically, investors should review any management commentary on shifts in customer preferences from legacy software to new AI tools.
Overall, many narratives have been built around AI disrupting software stocks like Adobe. However, so far, it hasn’t impacted the company’s revenue growth. If you think Adobe’s business can survive the AI revolution, the stock looks cheap to buy right now, with a price-to-earnings ratio (P/E) of 15, a 10-year low.