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Adobe's AI business tripled in a year. Its stock is down 31% from its high.

Adobe reports fiscal third-quarter results Thursday after the close, and the setup is unusual: the numbers Wall Street expects would be a good quarter, and the stock is trading as if the company already missed.

Shares closed Wednesday at $254.86, down 0.93% on the day and roughly 31% below the 52-week high of $370.86. Analysts model revenue of about $6.7 billion and adjusted earnings of $6.09 a share, against $5.99 billion and $5.31 a year ago — growth of about 12% on the top line and 15% on the bottom. Adobe's own guidance is $6.67 billion to $6.72 billion in revenue and $6.05 to $6.10 in non-GAAP earnings. Consensus, in other words, sits at the top of what management told investors to expect.

That gap between fundamentals and price is the whole story, and it did not open this week.

The succession problem

Adobe announced that Anil Chakravarthy will replace Shantanu Narayen as chief executive effective December 1, 2026. Narayen has run the company since 2007. The stock fell about 6.7% on the announcement to $266.51 — a leadership handoff disclosed days before an earnings print, with an interim finance chief, Steven Day, already in the seat.

Investors rarely reward that combination. The reaction was not a verdict on Chakravarthy, who built Adobe's digital experience business into a multibillion-dollar segment. It was a verdict on timing: a new CEO takes over a company being asked, every quarter, whether generative AI is a growth engine or an extinction event for design software.

Options markets are pricing a 5.4% move on Thursday's report in either direction.

What the AI numbers actually say

Adobe's disclosures on this point have been specific, which is more than most software companies offer.

• AI-first annual recurring revenue passed $500 million at the close of the fiscal second quarter, roughly triple the prior year.
• Firefly ARR is approaching $300 million, up about 50% quarter over quarter.
• The Acrobat AI assistant tripled its ARR year over year.
• Firefly asset generation ran at 4x the prior-year rate.
• GenStudio ARR grew 25% year over year.
• Second-quarter revenue was $6.62 billion.

Those are real dollars attached to products that did not exist three years ago. The bear case is not that they are fake. It is that they are too small to offset what Adobe gives up when a marketing team generates images without buying more Creative Cloud seats.

Citi raised its price target to $301 from $228 while keeping a Neutral rating, after modeling roughly a $500 million organic reduction to Adobe's full-year total ARR guidance. Barclays moved to $295 from $250 at Equal Weight. RBC expects results roughly in line. Analysts are marking their targets up and their ratings sideways — a pattern worth watching, because it means the sell side thinks the stock is cheap and the business is uncertain at the same time. That tension shows up across software right now, and it is the same question we worked through in what actually separates a durable software franchise from a rented one.

One more wrinkle: Adobe deferred second-half Creative Cloud price optimizations. Pricing power postponed is pricing power questioned.

The other report Thursday night

Oracle posts fiscal first-quarter results the same evening — consensus of $1.74 a share on about $19.14 billion in revenue. Oracle's remaining performance obligation hit a record $638 billion last quarter, up $85 billion sequentially and 363% year over year, powered by an OpenAI arrangement worth roughly $300 billion over several years. The stock closed Wednesday at $161.63, down 0.55%.

Two of the largest enterprise software franchises in the market report within an hour of each other, and both trade far below where they did a year ago. We walked through the arithmetic of Oracle's backlog and its share price earlier this week.

Also on the Thursday calendar: August producer prices before the open, where economists expect a 0.4% monthly increase against July's flat reading, and a jump to 5.3% year over year from 4.7%. Core PPI is seen at 0.3% monthly and 4.6% annually. Energy prices inside the index are estimated to have risen about 2.2% — which brings us to the reason equities could not hold a bid Wednesday.

Where the tape closed

Oil did the damage. Brent settled up $3.29, or 3.4%, at $101.21 a barrel after touching $101.58, its highest close since May 22. West Texas Intermediate settled at $96.05, up 3.25%. Iran struck a U.S. base in Jordan and attacked ships near the Strait of Hormuz in the largest wave of assaults on shipping since the war began seven months ago. Goldman Sachs analyst Daan Struyven has flagged a rising probability of Brent above $120. Physical dated Brent has been above $100 since September 3. The energy squeeze is no longer confined to crude futures, as diesel's record run showed this week.

Equities:

• S&P 500: 7,636.36, down 37.16 points, or 0.48%
• Dow Jones Industrial Average: 52,380.66, down 405.41 points, or 0.77%
• Nasdaq Composite: 26,253.34, down 168.07 points, or 0.64%
• CBOE Volatility Index: 16.46, up 4.71%
• 10-year Treasury: 4.845%, up 4.1 basis points

Apple held its fall event and unveiled the iPhone Duo, its first foldable, with a 5.4-inch outer display opening to a 7.6-inch screen, an A20 Pro processor, and a starting price of $1,999 for 256GB — $3,199 for the 2TB configuration. Preorders open October 16, with availability October 23. The Apple Watch Series 12 stays at $399 and the Ultra 4 at $799. The stock fell as much as 1.4% during the presentation, recovered, and closed at $315.34, down 0.28%. New CEO John Ternus got his launch; the market reserved judgment for the late-October earnings call, when holiday guidance arrives.

Chewy took the day's worst hit among large caps. The company beat and raised — net sales of $3.33 billion, up 7.3%; gross margin of 30.4%; adjusted earnings of $0.36 a share; adjusted EBITDA of $226.7 million, up $43.4 million year over year — and the stock closed at $20.75, down 10.83%. Autoship sales ran near $2.8 billion. A beat-and-raise met with a double-digit decline is the clearest single data point on how this tape treats good news, a pattern we tracked across last week's reporters as well.

Semis stayed firm against the drift: Lumentum closed at $988.98, up 1.07%, and Intel at $106.24, up 1.69%.