We came across a bullish thesis on Adobe Inc. (ADBE) on Rijnberk InvestInsights’ Substack by Daan Rijnberk. In this article, we will summarize the bulls’ thesis on ADBE. Adobe Inc. (ADBE)’s share was trading at $426.93 as of Jan 16th. ADBE’s trailing and forward P/E were 34.54 and 20.96 respectively according to Yahoo Finance.
Adobe
Adobe Inc. (ADBE) represents a compelling investment opportunity amidst market overreaction to valid but overstated concerns. Despite a -31% TTM share price return and trading 40% below its 2021 peak, Adobe maintains its position as a global leader in digital media and creative software. With an expected 4-year revenue and EPS growth CAGR of 10% and 11% respectively, the company offers significant long-term growth potential. Its forward P/E of 20x and PEG of 1.8 signal a 42% and 17% discount to its 5-year averages, indicating undervaluation for a business of such high quality.
Adobe’s massive moat, commanding over 80% market share in graphic design, is fortified by its innovative suite of tools, including Photoshop, Illustrator, and Acrobat. These products, entrenched in professional workflows and widely taught as industry standards, generate high-quality recurring revenue through Adobe Creative Cloud. The underlying digital design industry, projected to grow at a 10% CAGR, provides a robust growth runway, further enhanced by Adobe’s TAM growing at 12% annually.
The primary concerns dragging Adobe’s valuation include post-COVID revenue deceleration, rising competition from tools like Canva, and fears of AI disruption. While growth has slowed to the low teens, Adobe remains fundamentally strong, with resilient revenue streams and unmatched integration across creative disciplines. Competition from lower-cost or free alternatives like Canva poses a challenge, particularly for amateur and small-scale users, but Adobe’s comprehensive capabilities and professional-grade offerings remain irreplaceable for complex projects. The rise of AI, while perceived as a threat, also presents an opportunity for Adobe to integrate advanced features, enhancing user experience and product value. AI-driven tools may erode market share among non-professionals, but Adobe’s dominance in professional-grade software positions it to endure and thrive.
The market’s overreaction has pushed Adobe into value territory, with shares trading at a steep discount to historical multiples. Wall Street consensus projects solid revenue and EPS growth, while valuation models suggest an FY27 target price of $593, implying a CAGR of over 12%. At current levels near $420 per share, Adobe offers an attractive entry point for long-term investors, reflecting excellent risk-reward dynamics. Even under the shadow of AI concerns, Adobe’s resilient business model and market leadership make it a bargain for those seeking sustained growth and high returns.
Adobe Inc. (ADBE) is on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 123 hedge fund portfolios held ADBE at the end of the third quarter which was 107 in the previous quarter. While we acknowledge the risk and potential of ADBE as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than ADBE but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.