Adobe at 17x earnings is a bargain, no doubt – I am buying.
This is a no-brainer right now, with the AI risk way overestimated.
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Introduction
Prior to the emergence of AI, Adobe was generally seen as a SWAN stock thanks to its massive dominance, moat, subscription-based model, and necessity, which allowed it to be resistant to inflation or economic turmoil. This is highlighted perfectly in the graph below—this is what you want a SWAN stock to look like, showing no weakness at any time.
Since mid-2014, Adobe hasn’t reported a single quarter with growth below 9%, has realized a 17% revenue CAGR, and has grown revenue about 5.5x. Even on a sequential basis, there was only a single negative quarter over a 10-plus-year period. Whether it was inflation, an economic crisis/slowdown, a COVID-19 recession, or even tariffs, Adobe maintained growth and showed no weakness.
As a result, investors were rewarded handsomely with market-beating returns. From mid-2014 through mid-2024, which wasn’t even the peak for Adobe shares, these have realized returns at a 25% CAGR, which is more than double that of the S&P500.
It was pretty much a perfect stock to own – you could sleep well at night without any worries about its performance or health.
Well, how times have changed.
The emergence of AI over the last few years has led to massive concerns over Adobe’s moat possible eroding. I mean, what do you need expensive Adobe software for when AI can give you any image, edit, or video on demand?
These concerns can’t be denied, and in response, Adobe shares have massively underperformed, falling some 50% from a late 2021 peak, which was at roughly the same time ChatGPT was launched and the AI revolution began.
Yet, interestingly, these concerns or the threat from AI aren’t yet reflected in Adobe’s results at all. Alright, yes, growth has slowed down to a high-single-digit to low-teens rate since 2022 after some pulled-forward demand in 2021, and Adobe is finally facing the rule of large numbers – at a $22+ billion annual run rate, it gets harder to grow at a mid-teen rate, which makes sense and could be expected.
However, none of this is the result of AI. Adobe is simply not (yet) getting replaced, and this sell-off in Adobe shares since 2022, but particularly since 2024 (since 2022 was in part driven by the tech sell-off and the AI-driven sell-off really took shape since early 2024), is purely driven by the fear of a potential AI impact, not any real material impact.
And honestly, I believe this threat is massively overestimated. Yes, AI is a threat and could replace Adobe in certain aspects, especially in the lower ranks of the market, but for professional content, Adobe is still unmatched and of critical importance, which is what is still fueling growth.
Ultimately, I have a very hard time explaining the magnitude of this sell-off, and I believe Adobe shares have been massively oversold at this point. This is especially true after the tariff/recession-driven slowdown in recent weeks, to which Adobe is unlikely to see any exposure, which is what has driven $ADBE shares deeper into value territory to the point where the opportunity can no longer be ignored.
With financial results and guidance holding up well and shares selling off further so far this year, losing 21% so far in 2025, you can now pick up Adobe shares at just 17x the current full-year EPS consensus.
This means you pay only 17x earnings for a company with an 80%+ market share and a massive moat in an industry that should continue to compound nicely well into the next decade. According to the current Wall Street consensus, this should allow Adobe to maintain high-single-digit revenue growth and a low-teens EPS growth through the end of the decade.
Meanwhile, the company is in pristine financial health, has excellent margins, and, like I already alluded to before, is a low-risk, low-volatility pick thanks to its very little exposure to economic growth fluctuations, tariffs, or inflation thanks to its SaaS business model.
Paying only 18x earnings for this is just ridiculous. While I understand a discount to historical multiples is warranted amid slowing growth and the threat of AI, this has not been overdone. I believe it is a matter of time before investors realize that Adobe won’t be fully disrupted by AI and shares get valued accordingly.
Therefore, I believe we are now looking at a brilliant opportunity.
However, don’t just take my word for it. Let me walk you through the numbers and facts by addressing Adobe’s recent performance in more detail, as well as the threat from AI and its magnitude, before moving on to my revised financial estimates and Adobe’s current valuation in greater detail.
Let’s delve in!
