A record quarter

Adobe posted $6.76 billion in Q3 revenue on September 10, up 13% year over year, and lifted its full-year revenue and profit targets. Non-GAAP EPS rose 15% to $6.13.

The AI number nobody expected

AI-first ending ARR passed $650 million, up more than 150% year over year. That is the line item investors have been waiting years for Adobe to produce.

“Buried inside those headline numbers was a sharper story”

The funnel is converting

Firefly ARR grew 40% in a single quarter and Acrobat AI Assistant doubled its monthly users. Total MAU crossed 1 billion, with creative premium users up more than 70%.

Cash backs the story

Operating cash flow hit a Q3 record of $2.52 billion. Adobe repurchased 9.5 million shares with $24.55 billion still authorized, and agreed to buy Topaz Labs for its image and video AI models.

The backlog says slow down

Remaining performance obligations grew only 8% to $22.16 billion, well behind 13% revenue growth. The interim CFO also flagged a currency headwind hitting the fourth quarter.

Still a rounding error

That $650 million sits against a $27.50 billion total ARR base. The Topaz deal needs regulatory clearance, and Anil Chakravarthy takes over as CEO on December 1 mid-bet.

The market shrugged

Hedge fund holders slipped from 86 to 81 and short interest sits at 4.89% of float. A forward P/E of 9.22 on double-digit growth is the whole argument, either a gift or a warning.

“That combination is the tension in this stock right now.”