1Mo·

Sep 15 / New Position: Adobe

AI Narrative Is Wrong – Adobe’s Still Crushing It

I just opened a new position in Adobe. The market has been telling itself this story that AI will “kill” Adobe, that tools like Canva or Figma will eat its lunch. That’s just not true. The numbers are impeccable: free cash flow margins around 40%, revenue still growing double-digits, and they keep crushing earnings. Last quarter was another beat, and they even raised guidance. There’s zero evidence of AI eating into their market share.

In fact, Adobe is leaning into AI. Firefly, Acrobat AI, and other tools are already bringing in billions in ARR. Enterprise adoption is huge – roughly 90% of their top 50 customers are using AI features, and nearly half have doubled their spend since early 2023. This is not a company being disrupted. It’s a company using disruption to its advantage.

Meanwhile, the stock trades at a forward P/E below 20. Think about that: one of the highest-quality software companies in the world, with unmatched scale and brand power, priced like a dying business. It reminds me a lot of Google before its re-rating – great fundamentals, ignored because investors were chasing shinier AI names.

Yes, you need to watch Adobe closely. In software, market position is everything, and if they ever start losing ground, the story changes fast. However, they are not, and markets refuse to accept it. In 9 out of 10 scenarios, Adobe is on top of it. Great business don’t just disappear. Google didn’t, Meta didn’t and Adobe won’t either. They keep buying back shares aggressively, beating quarter after quarter, and have one of the stickiest customer bases in the industry.

Personally, I think this stock is poised for a rebound. And honestly? Investors just don’t want to open their eyes. This is one of the opportunities, where this Buffett quote fits perfectly: “Be greedy when others are fearful.”

$ADBE (+0,6 %)

4 Commentaires

Konstantin Harrer@MozartTrading

1Mo

@Carles @TheWorst @user28461 I’ll reply to all of you in one message, since you all pretty much raised the same question: What is Adobe going to do about competition? Won’t competitors and AI make Adobe redundant?

To be completely honest, the answer is probably yes, but with a caveat. I think eventually Adobe and most of the photoshop applications, or creative software companies will became irrelevant. However, I guess that point is going to come in 10+,15+,20+ years.

Company structures are rigid and often take decades until change is fully accepted. Just look how long it took major companies to digitalize all communication and finally retire the Fax machine. Adobe as pointed out, is the gold standard in its industry, and there are no real signs of slowing business, rather the opposite. And even if we saw suppressed growth rates, the markets have already priced in the worst case scenario: an Adobe losing its edge and becoming irrelevant.

Summary: Yes, eventually all of Adobe’s functions could be performed by AI, which would change the business dramatically. However the markets exaggerate this risk, since it is likely to be decades away, and Adobe isn’t in a rush to innovate and find solutions, due to its market position.

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Carles@Carles

1Mo

Not an $ADBE user, but I’ve read a lot of comments saying that $FIG is taking market share from them, I mean direct competition in every feature (not AI photo edition) and that anyone who starts with Figma forgets about Adobe.

Is there any truth on that? I wouldn’t buy Figma for its actual valuation and the fact I don’t know a lot about this market. But I’d like to know more opinions about this.

I agree with you that Adobe looks really nice in terms of valuation, of course that’s directly correlated to the market thinking they won’t grow that much as competition will erode their market share. But still forecasts look good to me. Everyone knows Adobe name and its tools and that’s a plus.

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TheWorst@TheWorst

1Mo

$ADBE is a really interesting case. On paper, it looks great, but I think there are more problems lurking beneath the surface of their strong financial statements. They have a lot of competitors eating away at their market share.

If you've used alternative products like Canva, Figma, or the Affinity Suite (which Canva has now bought), you know the user experience is night and day compared to clunky, unintuitive tools like Photoshop. This is reflected in their stagnating free cash flow growth since 2021.

That said, I have to admit they are still the gold standard that everyone is trying to replace. My main problem is that they're raising their prices so massively that they are basically forcing lower-end users to switch to other services. They're trying to operate like a company such as $FICO, continually hiking prices as if they're an untouchable standard, but they do so without any of $FICO 's regulatory backing.

In my book, that's not a wise management decision. But that's just my two cents.

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Nom@user28461

1Mo

What do you think Adobe will do since forms, illustration, photoshop etc. is not needed anymore because of AI?

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