Buy Adobe to Mitigate AI-Related Portfolio Risks
"Adobe especially, I have rated as one of the best stocks to buy in 2026."
For investors approaching or in retirement, the speaker recommends buying Adobe as a means to counterbalance exposure to AI stocks. He points to Adobe's relatively attractive valuation and its potential to be less correlated with the rapid changes in AI investment plans.
Adobe's Strong Fundamentals Create a Buying Opportunity
"Adobe remains one of the most stable cash-generating machines with strong recurring revenue and industry dominance in digital media. In my analysis, even though the stock is down from its all-time highs, the underlying fundamentals are solid. I hit the analyze button to determine a low price of 380, a high price of 820, and a middle price of 560. With steady revenue growth and expanding free cash flow, Adobe presents a compelling buying opportunity for those willing to invest in a durable technology leader that is also leveraging AI advancements."
Paul highlights Adobe's robust business model underpinned by recurring revenue and high margins. Despite a decline from previous highs, his analysis suggests that a buy is warranted at a low price of 380, making Adobe an attractive long-term play as it innovates with AI.
Adobe Turnaround Potential Amid AI Growth
"Now jumping back here to Adobe, why I believe the market is kind of eh a little bit wrong at least in the bearish thesis. We are looking and we can see that trailing 12 months of revenue for this company $23 billion in November 2025th. That continues to go up every quarter, and I believe for this upcoming year, fiscal year of 2026, they expect somewhere around $26 billion. Now, because of the massive bearish thesis, this company's valuation has gone down dramatically, but they're still very strong in operating cash flow. Free forward price to free cash flow is amazing – similarly, forward PE ratio is around 14 compared to a median of 23.6 – showing that the stock is extremely cheap relative to its fundamentals."
The speaker outlines a bullish turnaround thesis for Adobe (ADBE), noting that despite a severe downturn in past performance, Adobe's trailing 12-month revenue is growing and its valuation metrics, including a low forward PE ratio, are attractive. This suggests that the market might be mispricing the stock, with potential for a strong recovery in fiscal year 2026.
Adobe Trade Call: Valuation Rebound with AI Catalysts
"Now, for my upside potential on Adobe, the company has grown 14% earnings per share, has grown 13% this year, expected to grow 12% over the next two years. So 12 to 13% average earnings per share growth. And this is what I put in over here. 12% for the next 5 years. I put in a trailing P of 17 because the trailing it's 17. And I put in the same P for 2030. Assuming no multiple expansion, no multiple contraction, I will get about 78% on the upside or about a 12.2% annual return on Adobe. If I'm buying Adobe today, if I want to double my money in this case, I would have to pay about 314 for Adobe. But I'm being honest with you guys. I believe 15 and 17 times earnings, that's like my worst case scenario."
The speaker presents a trade call for Adobe (ADBE) by highlighting its low current earnings multiple relative to historical levels and robust earnings growth. He outlines a scenario where, with a purchase price around 314, the stock could potentially double its value over the next 5 years, emphasizing both fundamental strength and an AI-driven rebound.
Adobe Trading Opportunity Based On Intrinsic Value
"Starting with Adobe. So I calculated Adobe's intrinsic value or fair value per share to be $411 and the current market price for Adobe is $353. Adobe stock experienced a difficult year in 2025 as investors were concerned about the company's investments in artificial intelligence not being enough to keep up with competitors that are innovating more rapidly and the potential impacts to its business. Now, I agree that those are risks that Adobe stock investors should consider, but those risks are already priced into the valuation of this business. And I think from this point forward, there's a good risk versus return for Adobe stock investors."
The speaker presents Adobe as an attractive buy due to its calculated intrinsic value ($411) being significantly above its current trading price ($353), despite past challenges related to AI investments. The risks mentioned have already been factored into the stock's valuation, suggesting a favorable risk/reward balance moving forward.
Trade Call on Adobe Using Cash Secured Puts
"Now, let me show you what I'm talking about here because remember the way I'm using options here isn't about gambling. It's about a strategy to increase your returns. So, let's say I'm going to pick a date in the future. Let's say January 23rd and I want to buy Adobe at it's currently at 357. Well, I want to buy it at 3.40. Somebody's going to pay me 3.67 per share. No matter what, I get that money even if they get the shares or doesn't get the shares. And a month from now, if the stock is below 340, I get to buy the stock at 340, but I also got 370 along the way. So, I essentially bought it for 336."
The speaker outlines an options strategy using cash secured puts on Adobe (ADBE). The plan involves potentially acquiring Adobe shares at a lower price if the stock falls below 340, while collecting premium income at 3.67 per share. This actionable trade call is intended to generate a higher return on cash and mitigate risk, reflecting a bullish view on Adobe's fundamentals despite its current price.
Bearish Sentiment on Adobe
"At the very top of the list here, we have Adobe. This is a stock that investors simply want nothing to do with. Just look at some of the numbers of this company, and it shows how poor the sentiment is. First of all, Adobe continues to trade down. It's down 25% year-to-date and 34% over the past year, and 50% from its high over the past 5 years."
A critical commentary on Adobe highlighting its steep decline and bearish sentiment despite underlying revenue growth.
Buy Adobe for Long-Term Growth and Value
"Adobe's deep roots in creative software, marketing tools, and digital documents, along with its strategic push into the AI space, position it as a compelling long-term compounder. With consistent revenue growth, 30% bottom-line margins, and 90% gross margins, not to mention strong free cash flow driving significant share buybacks, the fundamentals are very attractive. I believe this is a strong buy for investors looking to take advantage of its sustainable competitive advantages."
The speaker presents Adobe as a robust growth opportunity due to its diversified product base and successful integration of AI. Strong margins and effective capital allocation through buybacks support a buy call, making it an appealing long-term investment.
Adobe: Discounted Valuation Amid AI Narrative
"The second stock that I believe could outperform in 2026 is Adobe. Adobe is down 27.5% over the last 5 years and is now trading at 15.5 times forward earnings, which is unheard of for Adobe. The narrative that AI is killing Adobe doesnt hold up because the company is still growing revenues at 10 to 10.5% despite AI technologies like ChatGPT emerging. They mentioned AI 89 times in their investor presentation and are well ahead of their AI targets. With high margins, consistent earnings per share growth of around 12-13%, and stock buybacks reducing shares outstanding, I think Adobe is one of the cheapest stocks in the market and a comeback candidate for 2026."
The speaker argues that Adobe, despite being painted as a casualty of the AI revolution, remains fundamentally strong. Trading at a very attractive 15.5x forward earnings along with solid revenue growth and AI-driven product improvements, Adobe is positioned to benefit rather than suffer. Its high margins and share buyback program further add to its appeal, making it a potential major comeback story in 2026.
Company Commentary: Adobe's Valuation Amid AI Competition
"Next, let's move on to Adobe, which is trading at a current market price of 356 and the current intrinsic value, the fair value I calculated is $418. I'm forecasting Adobe's free cash flow rises from 9.2 billion to 20 billion by 2034 and the weighted average cost of capital I'm using for Adobe is 12.34%. I estimated an after tax cost of debt of 6% and I calculated a cost of equity of 13%. The reason why Adobe stock is trading at such a low valuation is because investors are concerned about competition that's utilizing artificial intelligence to gain market share in the industry. All that being said, I believe Adobe's management team is capable enough and they have the resources to incorporate the features that customers like."
The speaker discusses Adobe's current undervaluation, highlighting a fair value of $418 versus a market price of $356. Although facing competitive pressures from AI-driven rivals, he expresses confidence in Adobe's management and its ability to innovate, making it an interesting prospect for further consideration.