Adobe’s AI Pivot Is Backfiring: Stock Plunge, Creator Fury, and Looming Lawsuits

Adobe’s shift toward becoming an AI-driven company has led to a steep stock decline, widespread creator backlash over ethical concerns, and fresh legal battles, raising questions about the software giant’s future in a rapidly evolving creative landscape as of early 2026.

Here’s the TL;DR...

• Adobe’s stock has plunged over 30% in 2026, reaching lows around $296, as investors worry generative AI from rivals like OpenAI threatens tools such as Photoshop and Premiere.

• Analysts at Oppenheimer and Morgan Stanley have downgraded the stock, highlighting risks to Adobe’s SaaS model amid AI commoditization.

• Despite record revenue and AI features like Firefly gaining traction, user complaints about high subscription costs and cancellation hurdles persist.

• Creators are boycotting Adobe over AI trained on unlicensed content, with terms of service changes sparking privacy fears.

• A December 2025 class action lawsuit accuses Adobe of using pirated books for AI training, adding to an FTC suit on deceptive practices.

• Alternatives like Canva, Affinity, and open-source tools are eroding Adobe’s market share, while the company forecasts modest 10% growth for 2026.

Why Is Adobe’s Stock Taking a Hit Despite Its AI Investments?

Adobe shares fell nearly 6% on January 13, 2026, following Oppenheimer’s downgrade to “perform” from “outperform,” with the firm scrapping its price target. This reflected Wall Street’s growing anxiety that generative AI is undermining Adobe’s stronghold in creative software.

Over the past year, the stock has shed more than 38%, lagging the broader market as tools from OpenAI’s Sora and Google’s Veo make advanced editing accessible without Adobe’s ecosystem. On X, users have pointed out that Adobe’s competitive advantage stemmed from complex interfaces now simplified by AI prompts.

Analysts at Melius Research and Wedbush echoed these concerns in late 2025 downgrades, marking the most bearish sentiment since 2013.

How Is Adobe Embedding AI Across Its Product Line?

Adobe has aggressively integrated AI, with Firefly’s generative credit usage tripling quarter-over-quarter by late 2025. Features like AI assistants in Photoshop and Premiere handle routine tasks, while partnerships with Google and OpenAI bolster the tool’s capabilities.

At the 2025 Adobe MAX conference, the company showcased these advancements, reporting a 35% year-over-year increase in monthly active users for its freemium AI products, exceeding 70 million. AI-driven traffic to creative sites surged 1,100% annually, signaling strong enterprise interest.

However, rollout delays and intensifying competition have tempered optimism, as some features arrived later than promised.

What Competitive Pressures Are Weighing on Adobe?

Adobe holds about 34% market share in image editing, but rivals are closing in. Open-source options like Flux and Z-Image provide free alternatives that rival Photoshop’s output quality.

X discussions highlight how AI democratizes skills, breaking Adobe’s user lock-in. Companies like Canva and Figma are reimagining workflows for the AI era, reportedly pushing Adobe’s share below 50% in some segments.

This shift commoditizes creative work, forcing Adobe to rethink pricing amid eroding barriers for entry-level users.

How Has Adobe’s Financial Outlook Evolved Amid These Shifts?

Fiscal 2025 closed with Q4 non-GAAP earnings per share at $5.50, surpassing expectations and driving record revenue. AI-influenced annual recurring revenue topped $8 billion, with overall earnings up 14% year-over-year.

For 2026, Adobe projects revenue between $25.9 billion and $26.1 billion, slightly above some analyst estimates but short of others anticipating over $26.4 billion. Despite these figures, the stock declined 20% in 2025, extending into 2026.

The March 2026 earnings report will be pivotal in assessing whether AI investments can sustain growth.

What Triggered the Wave of Creator Backlash Against Adobe?

Backlash erupted in 2024 over terms of service updates that appeared to allow Adobe access to user content for AI training. Creators feared their Creative Cloud uploads could fuel models like Firefly without permission.

Adobe clarified that training relies on licensed Adobe Stock and public domain sources, not customer files. Yet, distrust grew, amplified on X where users called for boycotts, labeling the company as untrustworthy.

By 2025, integrations with AI models from Midjourney and Runway—accused of using unlicensed art—intensified criticism.

How Are Artists Reacting to Adobe’s AI Features?

Many artists have abandoned Adobe, switching to Affinity, Clip Studio Paint, or Procreate, which has vowed to avoid AI altogether. On X, one user dubbed Adobe executives “liars” for straying from ethical AI pledges.

A film artist’s post warned that partnering with lawsuit-plagued firms like Midjourney invites legal trouble for Adobe. Adobe’s VP of Generative AI further inflamed tensions by suggesting artists opposing AI “won’t be successful.”

This has led to broader industry discussions on AI commoditizing art, with creators predicting fatigue from repetitive “AI slop.”

Why Has Adobe’s Subscription Model Fueled Additional Controversies?

High costs and tricky cancellations have long irked users, with price increases in 2025 tied to AI development adding fuel. A September 2025 class action alleged deceptive tactics that conceal early termination fees.

X users linked this to AI, claiming hikes fund tools that undercut creators’ livelihoods. The FTC’s parallel lawsuit over similar issues has spotlighted Adobe’s practices, eroding consumer trust.

Automatic AI feature opt-ins without explicit consent have only deepened the rift.

Breaking Down the Class Action Lawsuit on AI Training Practices

Author Elizabeth Lyon filed a class action in December 2025 in California federal court, alleging Adobe trained its SlimLM model on pirated books, including hers. The suit points to the SlimPajama dataset, sourced from RedPajama and the Books3 collection scraped from pirate sites.

This is Adobe’s first major AI copyright challenge, akin to Anthropic’s $1.5 billion settlement. Lyon demands compensation for thousands of authors, claiming no authorization or royalties were provided.

Adobe refuted the accusations, asserting SlimLM used an open-source dataset from Cerebras.

What Other Legal and Regulatory Challenges Loom for Adobe?

Beyond the AI suit, the FTC case on subscriptions could reshape Adobe’s revenue streams. The company has expanded its Content Authenticity Initiative to address AI ethics and comply with emerging transparency regulations.

Analysts note these hurdles compound competitive threats, potentially stalling AI momentum.

Are There Glimmers of Hope for Adobe’s AI Strategy?

Adobe is countering with initiatives like a $10 million fund for AI films and the $1.9 billion Semrush acquisition for better analytics. Tools such as Adobe LLM Optimizer target AI search optimization, opening new avenues.

Executives frame AI as an opportunity, not a risk, with some investors viewing the stock dip as a buying chance—price targets span $270 to $605. Consumption-based pricing for generative credits could stabilize revenue.

Which Alternatives Are Creators Turning To?

Open-source staples like Photopea and GIMP, enhanced by AI models, serve as free substitutes. Procreate’s anti-AI stance appeals to purists, while DaVinci Resolve lures video editors from Premiere.

X posts celebrate switches, citing lower costs and ethical alignments. Though switching barriers exist for pros, AI eases transitions for hobbyists.

How Could AI Fundamentally Alter Adobe’s Business in the Long Run?

Adobe is pivoting to usage-based models, monetizing AI directly through credits. This might strengthen enterprise bonds but risks irrelevance if “good enough” AI outputs bypass its suite.

Industry watchers foresee “human-made” branding rising by 2026, as anti-AI sentiment drives premium demand for authentic work.

How Is Adobe Responding to the Backlash and Legal Issues?

The company stresses ethical sourcing for Firefly and clearer user communications, with executives like Scott Belsky addressing trust gaps. Despite this, ongoing ties to controversial models like Runway keep critics vocal.

Creators are split: some leverage AI for speed, others defend human craft.

Adobe’s turbulent AI transition highlights the tech industry’s balancing act between innovation and ethics. With stock woes, creator exodus, and legal scrutiny persisting, the company’s success hinges on regaining trust and adapting nimbly. If it navigates these challenges, Adobe could emerge stronger; otherwise, it risks ceding ground in a democratized creative world, where AI empowers newcomers but challenges incumbents.

Hat Tips

• Investopedia, “AI Could Spell Trouble for Software. These Experts Say to Avoid One Stock In Particular,” January 13, 2026

• Bloomberg, “Adobe Analysts Turn Most Bearish Since 2013 as AI Threat Looms,” January 13, 2026

• Reuters, “Adobe sees upbeat annual results on AI, design software strength,” December 10, 2025

• The Motley Fool, “Everyone Thinks Adobe Will Suffer from AI. Here’s Why It Could Thrive Instead,” November 12, 2025

• PYMNTS, “Adobe Aims to Reassure Investors as AI Transforms Markets for Creative Software,” October 31, 2025

Article Compiled and Edited by Derek Gibbs on January 21, 2026 for Clownfish TV D/REZZED.