Adobe (NASDAQ:ADBE) reported Q2 FY2025 results on June 12, 2025, posting record revenue of $5.87 billion, up 11% year over year, non-GAAP EPS of $5.06, up 13% year over year, and raising FY2025 revenue as well as GAAP and non-GAAP EPS targets. Management highlighted accelerated AI monetization and strong user growth, set against ongoing product innovation and successful market expansion across both Digital Media and Experience segments.

The following analysis distills distinct strategic, operational, and financial insights directly impacting the company’s long-term investment thesis.

AI Integration Drives Measurable ARR and User Growth

Artificial intelligence (AI)-influenced annual recurring revenue (ARR) is tracking in the billions, while AI-direct ARR from products such as Acrobat AI Assistant, Firefly, and GenStudio is on pace to surpass the initial $250 million FY2025 target. Monthly active users (MAUs) across Acrobat, Express, and related offerings exceeded 700 million, with Express capability adoption inside Acrobat scaled approximately 11x year over year, and generative AI features usage grew more than 3x year over year.

"While our AI-influenced ARR is already contributing billions of dollars, our AI book of business from AI products, such as Acrobat AI Assistant, Firefly app and services, and Gen Studio for performance marketing, is tracking ahead of the $250 million ending ARR target by the end of fiscal 2025."
— Shantanu Narayen, Chair and CEO

The successful commercialization and deep user engagement from AI-driven products indicate a durable competitive advantage in both monetization velocity and product differentiation, reinforcing Adobe's leadership as the creative industry migrates toward AI-centric workflows.

Commercial Content Safety as a Strategic Differentiator

Regulatory scrutiny of AI-generated content and rising industry litigation around copyright train models -- illustrated by lawsuits filed by Walt Disney and Comcast's NBCUniversal against AI image generator Midjourney -- have increased enterprise sensitivity to IP risk. Adobe underpins its Firefly models with commercially safe training data, including stock and other content it has access to, and compensates contributors, supporting widespread enterprise adoption and mitigating legal risk.

"... we have trained our Firefly models, as many of you know, on stock and other content that we have access to. We do have a contributor fund that pays out to those individuals. And as a result, we feel like we're in a very advantaged position when it comes to people choosing Model Health, especially in enterprises."
— David Wadhwani, President of Digital Media

This strategic focus on content provenance and transparent creator compensation enhances long-term enterprise adoption and positions Adobe as a safe harbor amid regulatory uncertainty, and reduces the risk of abrupt revenue headwinds from legal challenges.

Tiered Product Strategy Accelerates Monetization Across Customer Segments

Subscription revenue for the Business Professionals and Consumers group surged 15% year over year in Q2, while Creative Cloud Pro -- offering greater value at higher price points -- has already launched in North America, with global rollout underway. MAU growth for the combined Acrobat and Express funnel accelerated above 25% year over year, while Firefly app traffic grew over 30% quarter over quarter, and paid subscriptions nearly doubled.

"... we've been able to introduce the Creative Cloud Pro plan, which is a higher-priced plan, but has a lot more value integrated into the ecosystem of the desktop applications. But it also comes with the Firefly application as well. Then in the context of enterprises, we're seeing a huge growth of Firefly services and GenStudio for automation of that content."
— David Wadhwani, President of Digital Media

This granular "stratification" unlocks the ability to both upsell higher-value tiers and broaden market access, expanding the total addressable market while supporting double-digit top-line growth and margin durability for Adobe.

Looking Ahead

Management forecasts total revenue of $5.875 billion–$5.925 billion (GAAP) for Q3 FY2025, GAAP EPS of $4–$4.50, and non-GAAP EPS of $5.01–$5.20, with an adjusted operating margin of approximately 45.5%. Full-year FY2025 targets raised to $23.5 billion–$23.6 billion in total revenue, $17.45 billion–$17.5 billion Digital Media revenue, 12.1% Digital Media ending ARR growth, and $20.50–$20.70 non-GAAP EPS; AI-direct ARR set to exceed $250 million. Management reaffirmed Digital Experience subscription revenue guidance, and continued aggressive product innovation cadence across AI, mobile, and automation, ensuring robust near-term and structural long-term growth levers are in place.

Where to invest $1,000 right now

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JesterAI is a Foolish AI, based on a variety of Large Language Models (LLMs) and proprietary Motley Fool systems. All articles published by JesterAI are reviewed by our editorial team, and The Motley Fool takes ultimate responsibility for the content of this article. JesterAI cannot own stocks and so it has no positions in any stocks mentioned. The Motley Fool has positions in and recommends Adobe and Walt Disney. The Motley Fool recommends Comcast. The Motley Fool has a disclosure policy.

"Dirt cheap" and artificial intelligence (AI) aren't typically mentioned in the same sentence. There's a preconceived notion that many of the AI stocks in the market are quite expensive, which is, for the most part, a fair assessment.

However, there are still plenty of dirt cheap stocks that look like screaming buys in the AI space. Two of them are Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) and Adobe (NASDAQ: ADBE), and each looks like an incredible buy right now.

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Image source: Getty Images.

Why are these two dirt cheap?

I consider both of these stocks cheap because they meet two criteria. First, both stocks are cheaper than the broader market, as measured by the S&P 500 (SNPINDEX: ^GSPC). The S&P 500 has a forward price-to-earnings (P/E) ratio of 22.1, and both stocks are currently cheaper than that mark.

GOOGL PE Ratio (Forward) data by YCharts. PE Ratio = price-to-earnings ratio.

Furthermore, both stocks have rarely been this cheap, which is another sign for investors that now may be an excellent time to scoop up shares.

My second factor for determining whether a stock is dirt cheap is its ability to grow earnings per share (EPS) faster than the market. If a stock is cheaper than the broader market, yet growing more slowly, there is a good reason why it's priced below the market. Both companies are projected to post strong earnings growth over the next two years, exceeding the S&P 500's usual 10% growth rate.

Data source: Yahoo! Finance. EPS = earnings per share.

However, I believe these analyst projections are flawed, as they don't account for both companies having massive stock buyback plans. With both companies having record-low stock prices, don't be surprised if they increase their share buyback amounts. A cheaper stock makes these buybacks more effective and can cause the share count to fall quickly, which boosts EPS.

Both stocks look cheap, yet they have growth that should make them premium to the market. So, why is the market valuing them in this way?

The market assumes both companies are victims of the AI trend

Both Alphabet and Adobe's primary businesses are at risk of being disrupted by AI. Alphabet's primary business is Google Search, and there has been no shortage of predictions about replacing traditional search with AI. However, Google has already introduced AI search overviews and released an AI search mode. Both options may bridge the gap and keep Alphabet in the leadership position. Furthermore, generative AI has been around for nearly three years, and Google Search's revenue still rose by 10% in the previous quarter. So, clearly, it isn't dead yet.

Adobe is in a similar boat. Its suite of graphic design products has become the industry standard and is used worldwide. However, investors are worried that generative AI image generation could make Adobe's software obsolete.

While this may produce some headwinds, Adobe has already launched its incredibly popular Firefly AI, which allows its users to generate images and easily modify existing designs. Furthermore, generative AI tools don't offer the same level of control that Adobe's software provides, and graphic designers aren't willing to give up full creative control to a randomly generated image.

While both companies will encounter some headwinds popping up from time to time as a result of generative AI, these are mostly headline-induced worries. The actual businesses are doing just fine. Their consistent execution, combined with a cheap stock price, gives me confidence in their long-term ability to provide market-beating returns, which is why I think these two are excellent buys now.

Should you invest $1,000 in Alphabet right now?

Before you buy stock in Alphabet, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Alphabet wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $651,049!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $828,224!*

Now, it’s worth noting Stock Advisor’s total average return is 979% — a market-crushing outperformance compared to 171% for the S&P 500. Don’t miss out on the latest top 10 list, available when you join Stock Advisor.

See the 10 stocks »

*Stock Advisor returns as of June 2, 2025

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Keithen Drury has positions in Adobe and Alphabet. The Motley Fool has positions in and recommends Adobe and Alphabet. The Motley Fool has a disclosure policy.

Adobe (NASDAQ: ADBE) and Meta Platforms (NASDAQ: META) are growing revenue while improving profitability.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Continue »

*Stock prices used were the afternoon prices of May 25, 2025. The video was published on May 27, 2025.

Should you invest $1,000 in Meta Platforms right now?

Before you buy stock in Meta Platforms, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Meta Platforms wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $653,389!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $830,492!*

Now, it’s worth noting Stock Advisor’s total average return is 982% — a market-crushing outperformance compared to 171% for the S&P 500. Don’t miss out on the latest top 10 list, available when you join Stock Advisor.

See the 10 stocks »

*Stock Advisor returns as of May 19, 2025

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Parkev Tatevosian, CFA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Adobe and Meta Platforms. The Motley Fool has a disclosure policy. Parkev Tatevosian is an affiliate of The Motley Fool and may be compensated for promoting its services. If you choose to subscribe through his link, he will earn some extra money that supports his channel. His opinions remain his own and are unaffected by The Motley Fool.

This company has demonstrated solid revenue growth for a long time, and investors appreciate the reliability.

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*Stock prices used were the afternoon prices of May 24, 2025. The video was published on May 26, 2025.

Should you invest $1,000 in Adobe right now?

Before you buy stock in Adobe, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Adobe wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $653,389!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $830,492!*

Now, it’s worth noting Stock Advisor’s total average return is 982% — a market-crushing outperformance compared to 171% for the S&P 500. Don’t miss out on the latest top 10 list, available when you join Stock Advisor.

See the 10 stocks »

*Stock Advisor returns as of May 19, 2025

Parkev Tatevosian, CFA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Adobe. The Motley Fool has a disclosure policy. Parkev Tatevosian is an affiliate of The Motley Fool and may be compensated for promoting its services. If you choose to subscribe through his link, he will earn some extra money that supports his channel. His opinions remain his own and are unaffected by The Motley Fool.

The stock market is quietly staging a comeback following a rough start to 2025. While still down about 9% year to date as of this writing, the innovation-heavy Nasdaq Composite index has rallied by more than 16% from its recent low.

Signs that the Trump administration is willing to adjust some of the sweeping changes in trade policy and negotiate bilateral deals have helped de-escalate fears of a broader trade war. There are still plenty of uncertainties for investors to balance, but also a renewed sense that the big picture remains positive. With the first-quarter earnings season underway, early results from tech leaders are showcasing underlying sector resilience and the ongoing transformative impact of artificial intelligence (AI) as a major market theme.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Continue »

Let's take a look at three AI stocks that could be poised to make a big bull run.

Image source: Getty Images.

1. Adobe: An AI bargain

Despite solid growth and record profitability, shares of Adobe (NASDAQ: ADBE) are down about 38% from their 52-week high. The tech giant, recognized for its industry-leading creative media software like Photoshop and Premiere Pro, is capitalizing on strong demand for innovative AI and machine learning features integrated across its app ecosystem.

In the company's fiscal 2025 first quarter (for the period ended Feb. 28), revenue climbed by 10% year over year, alongside a 13% increase in adjusted earnings per share (EPS), with management forecasting further increases for 2025.

The market seems skeptical as to whether Adobe's early AI success will last, as one reason to explain its stock price weakness. Specialized AI companies like privately held Canva and OpenAI have introduced competing AI-powered text-to-image and video generation features, representing emerging competition to Adobe's industry dominance. However, the company's reputation for quality and its loyal customer base, attracted to its professional-grade capabilities, provide plenty of reasons to be optimistic.

Notably, the stock's valuation is compelling, trading at just 18 times its consensus 2025 EPS as a forward price-to-earnings (P/E) ratio, well below the company's five-year average forward price-to-earnings ratio. Adobe appears undervalued and well positioned to rebound if it continues to deliver on its financial targets.

ADBE PE Ratio (Forward) data by YCharts

2. Alphabet: Monster Q1 earnings

Shares of Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) surged following a better-than-expected first-quarter earnings report. Revenue grew by 12% year over year, which propelled a massive 49% increase in adjusted EPS for the period ended March 31.

The company's AI strategy is paying off, driven by Google Cloud Platform (GCP), which offers AI infrastructure and generative AI solutions that are gaining market traction at the enterprise level.

Alphabet's latest AI model, Gemini 2.5, is delivering breakthrough performance, translating directly into to higher advertising conversions across Google Search and YouTube. With over 270 million paid subscriptions for services like YouTube Premium and Google One, the company is diversifying its business and generating high-quality cash flow. Management's confidence in the outlook is reflected in a new $70 billion share repurchase authorization and a 5% increase in the quarterly dividend rate.

With the stock still down 22% from its 52-week high, Alphabet is a buy-the-dip opportunity poised to rally higher.

3. SoundHound AI: A hyper-growth story

SoundHound AI (NASDAQ: SOUN) is another tech stock that deserves a closer look following a deep stock price sell-off. Shares are down approximately 52% year to date as of April 25, an extreme correction that doesn't seem justified considering the company's phenomenal growth momentum.

The company is capturing strong demand for its voice-AI technology, representing a more natural and intuitive method for people to interact with AI-powered applications. In 2024, revenue reached $84.7 million, climbing 83% compared to 2023. For 2025, SoundHound expects revenue to nearly double, forecasting a range between $157 million and $177 million. The bullish case for the stock is that these trends are just getting started, with the company exploring a growing number of use cases, including hands-free in-vehicle AI car assistants, customer service chatbots, and voice-enabled ordering for restaurants.

With the potential to consolidate its position in an estimated $140 billion addressable market, SoundHound AI remains well positioned to reward shareholders over the long run.

Should you invest $1,000 in Alphabet right now?

Before you buy stock in Alphabet, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Alphabet wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $594,046!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $680,390!*

Now, it’s worth noting Stock Advisor’s total average return is 872% — a market-crushing outperformance compared to 160% for the S&P 500. Don’t miss out on the latest top 10 list, available when you join Stock Advisor.

See the 10 stocks »

*Stock Advisor returns as of April 28, 2025

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Dan Victor has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Adobe and Alphabet. The Motley Fool has a disclosure policy.