Hey Folks, While investors chase the latest AI darlings, Adobe has quietly become one of the most mispriced names in tech.
The "Canva and AI will kill Adobe" narrative has been running for two years now—yet revenue grew 11% last quarter and subscribers aren't canceling.
The stock tells a different story than the fundamentals. Adobe's valuation has collapsed to decade lows, pricing in an existential disruption that simply isn't materializing. For investors willing to look past the noise, this disconnect creates a compelling opportunity.
Here are four reasons Adobe deserves a closer look...
1. A 10-Year Low Valuation Based on Fear, Not Facts
Adobe's price-to-sales ratio has collapsed from a historical median of 12.5x down to roughly 5.4x—the lowest level in a decade. The market is treating this like a company facing imminent disruption. But the numbers don't support that narrative.
What the bears are missing:
- Revenue continues growing at double digits despite two years of AI doom predictions
- Subscriber retention remains strong—customers aren't fleeing to alternatives
- The "AI will kill Adobe" thesis has been wrong for eight consecutive quarters
- Professional workflows remain deeply entrenched in Adobe's ecosystem
The market is pricing in a scenario where AI competitors steal Adobe's lunch. Instead, Adobe keeps posting growth while the stock gets cheaper. That's a setup value investors dream about. | | | 2. AI Makes Adobe More Essential, Not Less
Here's what the bears fundamentally misunderstand: AI isn't disrupting Adobe. Adobe is becoming the infrastructure layer for AI creativity.
Firefly, Adobe's generative AI platform, is now integrated across Photoshop, Illustrator, Premiere, and the entire Creative Cloud suite. Professional designers aren't abandoning these tools for free AI alternatives—they're using Firefly inside the software they already depend on.
Why Adobe is the picks-and-shovels play for AI creativity:
- AI features make existing tools more powerful, not obsolete
- Integration across the Creative Cloud increases switching costs and stickiness
- Professionals need enterprise-grade, legally safe AI tools—not free generators with licensing questions
- Adobe's training data and commercial protections give it a moat competitors can't easily replicate
Think about it this way: when AI makes creative work faster and more accessible, demand for professional creative tools expands. Adobe sits at the center of that expansion.
3. A Free Cash Flow Fortress
Beyond the AI narrative, Adobe's financial profile is exceptional by any measure.
The company generates $9.6 billion in annual free cash flow with 89% gross margins. These are software economics at their absolute best—the kind of numbers that would make any business owner envious.
The compounding machine in action:
- Free cash flow yield approaches 7%, meaning solid returns even with zero growth
- Share buybacks are reducing the float by 4%+ annually
- Recurring subscription revenue provides visibility and predictability
- Balance sheet strength allows continued investment in AI and product development
Even if you're skeptical about Adobe's growth prospects, the cash generation alone makes a compelling case. | | | 4. A PEG Ratio That Screams Undervaluation
Adobe trades at just 14.5x forward earnings. For context, analysts expect 18%+ EPS growth over the next five years. That gives you a PEG ratio of almost exactly 1.0.
For a dominant, high-margin, recurring-revenue business, that's genuinely cheap.
The re-rating math:
- Historical trading range sits between 18-20x forward earnings
- Current multiple of 14.5x reflects excessive pessimism
- A return to even the low end of historical averages implies 30-40% upside
- That's before any earnings growth kicks in
The setup is straightforward: if Adobe simply returns to a normal valuation—not a premium one, just normal—investors could see substantial gains.
Layer on continued earnings growth and buybacks, and the total return potential becomes significant.
What it All Means...
Adobe has become one of those rare situations where narrative and fundamentals have completely diverged. The market sees an AI victim. The financials show a company that's integrating AI into its dominant platform while generating nearly $10 billion in annual free cash flow.
The valuation reflects fear. The business reflects strength. For patient investors, that gap represents opportunity. | | | Shifting gears... For today's stock of the day - we are highlighting BigBear.ai (BBAI). Here is the clear evidence for upside potential that we identified for discord members: | | | BigBear.ai builds decision-intelligence software that fuses data ingestion, modeling/simulation, and AI to help customers (especially U.S. defense) make faster, higher-quality operational decisions.
Anyways...
That's all for now!
Until Next Time,
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