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.
Adobe Stock Rated as a Buy with Upside Potential
"If nothing changes, forward PE stays the same, earnings per share stays the same, the stock price could rise to $393 per share by the end of next year. Overall, I like the risk versus reward for investors and the upside here for Adobe is nice and the downside here I think is relatively limited given its already very low record low forward PE multiples. I have Adobe stock rated as a buy and my estimate for 2026 suggests meaningful upside for investors in Adobe."
The speaker delivers an actionable trade call on Adobe stock, citing its current low forward P/E ratio and favorable earnings estimates as catalysts for a price increase. He outlines a scenario where, if fundamentals remain unchanged, Adobe could reach $393 per share, with even higher targets if the forward PE expands. Despite acknowledging potential risks from AI-driven competition, he maintains a bullish view and rates Adobe as a buy.
Bullish Trade Call for Adobe (ADBE)
"Adobe went from 35p and it used to trade around 50p, now trading at 14.8 times earnings. I think Adobe is presenting one of the best opportunities in the market and one of the most misunderstood opportunities, and the company believes its misunderstood because theyre using their free cash flow to buy massive quantities of stock and reduce shares outstanding. I used to be bearish on Adobe, but if AI is not killing Adobe as fast as people believe, I think 14 times earnings will likely end up being cheap and the stock could recover in a major way. So, I like Adobe very much over here."
The speaker outlines a bullish trade call for Adobe (ADBE), emphasizing its undervaluation at around 14 times forward earnings despite strong fundamentals, recurring revenue, and continued cloud growth. They highlight Adobes active share buybacks and potential multiple reversion if AI does not hurt its fundamentals, making it one of the best buying opportunities in the market.
Watch List Addition for Adobe (ADBE) Fueled by AI and Strong Free Cash Flow
"I am actually going to put Adobe on my watch list because if it can get above 375 a share then it can go for a pretty nice run to like 420 and maybe beyond."
Adobe is highlighted as a strong long-term investment due to its dominant subscription model, high gross margin, and the integration of its generative AI tool, Firefly, into its Creative Cloud offerings. The speaker underscores Adobe's robust free cash flow growth and the potential upside if the current technical support levels hold, even as the chart currently challenges investors. While acknowledging competitive pressures from emerging platforms, the overall fundamentals and AI catalyst offer an attractive trade setup.
Buy Adobe on the Back of Cheap Valuation and Aggressive Buybacks
"Adobe is trading at roughly half the price. At a 15 P-E ratio and a 6% free cash flow yield, this company is uniquely cheap in an expensive market. ... As the valuation falls, Adobe buys back more."
Despite concerns over competitive pressures from newer digital tools, Adobe is presented as an attractive investment due to its low valuation metrics compared to peers and aggressive share buybacks. The host argues that its discounted PE and improving free cash flow yield make it a compelling buy.
Adobe Trading at Discounted Valuation with Aggressive Buybacks
"At a 15p ratio and a 6% free cash flow yield, this company is uniquely cheap in an expensive market. Management is aggressively buying back stock as the valuation falls."
Despite competitive pressures from innovative players like Canva and advances in AI-driven tools, Adobe is trading at a significant discount relative to its historical multiples, bolstered by strong fundamentals and aggressive share repurchases.
Adobe as a Future Share Cannibal Candidate
"My number one company is Adobe. They haven\"t been a historical share cannibal but recently have ramped up buybacks, achieving around a 7-8% buyback yield, while continuing to produce approximately 10% revenue growth each quarter. The risk remains if management shifts focus away from buybacks."
Adobe is highlighted as an unconventional pick among future share cannibals due to its recent accelerated share buyback program and consistent revenue growth. The commentary notes potential risk if the strategy changes.
Adobe as a Future Share Cannibal Trade Call
"My number one company is Adobe. They kind of have been ramping buybacks over the last couple of years as the threat from AI has knocked the stock down and led to multiple compression. Today, I think they have like a 7% or 8% buyback yield. But with stock-based comp, they are reducing total shares outstanding by about 5.5% annually."
Adobe (ADBE) is highlighted as a potential future share cannibal due to its increasing commitment to buybacks, consistent revenue growth of around 10% per quarter and a solid buyback yield in the high-single digits. Although historically not known as a share cannibal, recent dynamics, particularly due to AI-driven stock compression, present an opportunity if the stock remains undervalued.
Adobe: Potential Re-rating to Double Price
"Imagine if this company gets re-rated back to a 20 multiple or a 25. The stock price could quite literally double from here from 350 to 700."
The speaker highlights Adobe's current discount, marked by its historically low valuation metrics and a high free cash flow yield. He suggests that if market fears subside and the firm is re-rated, Adobe’s stock price could potentially double from $350 to $700.