On September 10, Adobe (NASDAQ:ADBE) posted 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 climbed 15% to $6.13, while GAAP EPS rose 11% to $4.62. Buried inside those headline numbers was a sharper story: AI-first ending ARR topped $650 million, growing more than 150% year over year. The same call brought a leadership change, with Anil S. Chakravarthy set to take over as CEO from Shantanu Narayen on December 1. Investors got a lot to digest in one afternoon.
AI Finally Pays For Itself
Adobe’s AI tools are no longer just a demo. Firefly ending ARR, which spans the Firefly app and its credit packs, grew 40% quarter over quarter, and the Acrobat AI Assistant doubled its monthly active users over the same three months. Total monthly active users across Adobe’s businesses surpassed 1 billion in the quarter, up more than 20% year over year, and creative premium MAU crossed 100 million, up more than 70%. Business professionals and consumers MAU passed 900 million, up more than 25%. That kind of user growth, concentrated in free and freemium tiers, is what feeds the paid AI upgrades now showing up in ARR.
The company backed that growth with cash. Operating cash flow hit a third-quarter record of $2.52 billion, and Adobe bought back roughly 9.5 million shares during the quarter, leaving $24.55 billion still authorized for repurchases. Management raised its full-year revenue target to a range of $26.58 billion to $26.63 billion and its non-GAAP EPS target to $24.45 to $24.50. On the product side, Adobe struck a deal to acquire Topaz Labs, whose AI enhancement models for image and video work would slot directly into Firefly and Creative Cloud. Enterprise demand held up too, with ending ARR growing more than 20% year over year at each of Adobe Experience Manager, Adobe Gen Studio, and Adobe Experience Platform.
Forward Bookings Tell A Slower Story
Not every metric moved as fast. Remaining performance obligations, the backlog of contracted but unrecognized revenue, grew 8% year over year to $22.16 billion, trailing both the 13% revenue growth and the 11.2% growth in total ending ARR. Current RPO grew 9%, also behind the topline. Interim CFO Steven Day flagged a separate issue heading into the fourth quarter: a foreign-exchange headwind that partly offset the benefit of the third-quarter beat when management updated its full-year guidance.
AI-first ARR, for all its 150% growth rate, is still just over $650 million against a total ARR base of $27.50 billion, so it remains a small slice of the business even as it scales. The transition arrives at a pivotal moment too, with Chakravarthy set to take the CEO seat on Dec. 1 just as the company leans harder into an unproven agentic-software strategy, and the Topaz Labs deal still needs to clear regulatory approval before it adds anything to the numbers.
Wall Street Isn’t Buying The Story
Hedge funds trimmed their Adobe positions from 86 to 81 quarter over quarter. That is a modest pullback, not a stampede. Short interest sits at 4.89% of the float, enough for a real bear camp but nowhere near a crowded trade. A forward P/E of 9.22, as of September 11, looks strikingly low given double-digit revenue growth and AI-first ARR up more than 150% a year. That combination is the tension in this stock right now.
Where The Real Test Begins
Adobe heads into the fourth quarter with a raised outlook, a fast-growing AI product line, and a new chief executive about to take the wheel. The freemium funnel driving users into Firefly and Express is starting to convert into the paid AI revenue management has been promising for years. Backlog growth trailing the topline, a looming FX headwind, and an acquisition still awaiting regulatory sign-off are reminders that execution has to 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.
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