Adobe (ADBE) Bets Big On Saudi Arabia While Wall Street Hesitates

On August 31, Adobe (NASDAQ:ADBE) committed more than $4 billion to giving away its AI tools. The company will offer 12 months of free access to its Firefly Standard subscription and Adobe Express Premium features to more than 27 million eligible citizens and residents in Saudi Arabia, expanding its partnership with the country's Ministry of Communications and Information Technology and the government-backed AI firm Humain. The deal includes a new image generation model tuned for Saudi culture, letting users create images from Arabic-language prompts. It is a striking bet for a stock that trades like the market expects its growth to stall. A Business Where AI Is Adding, Not Subtracting That confidence has some backing. Adobe's AI-first products, the newer tools built around generative features, saw their annualized recurring revenue triple year over year to more than $500 million, evidence that artificial intelligence is adding to Adobe's business rather than just threatening it. The Saudi Arabia expansion extends that momentum internationally, giving Firefly and Express a built-in user base of millions who might otherwise never try Adobe's software, in a region where Humain and the country's sovereign wealth fund are pouring money into localized AI development. The core business is not showing cracks either. Adobe's most recent quarter delivered $6.62 billion in revenue, up 13% year over year and a company record, extending two years of consistent low double-digit growth. Subscriptions make up virtually all of that revenue, and Adobe closed the quarter holding $27.1 billion of annualized recurring revenue, plus another $22.3 billion in contracted revenue still to be recognized, a backlog that gives management visibility most software companies would envy. Net margin for fiscal 2025 came in near 30%, and free cash flow neared $9.9 billion for the year, funding both new deals like the Semrush acquisition and buybacks that retired about 2% of shares outstanding in just three months. A Valuation That Still Smells Doubt Yet the stock's roughly 10 times forward earnings multiple says the market is not convinced the good times continue. The fear is straightforward: generative AI now lets anyone produce images and design work without needing Photoshop expertise, a skill that used to be the whole point of buying Adobe's software. Adobe faces that pressure not just from AI-focused startups but from Microsoft, and any regulatory shift like the European Union's AI Act could raise compliance costs and complicate how Adobe trains its own models.