Adobe Inc. (ADBE): A Bull Case Theory

We came across a bullish thesis on Adobe Inc. (ADBE) on Substack by Francesco Ferrari. In this article, we will summarize the bulls’ thesis on ADBE. Adobe Inc. (ADBE)’s share was trading at $383.53 as of March 31^st. ADBE’s trailing and forward P/E were 25.33 and 18.80 respectively according to Yahoo Finance.

Adobe’s stock journey has been remarkable, delivering an 18-19% CAGR from 1993 to 2020 while weathering multiple crises. However, recent years have raised questions about its future trajectory. Despite concerns, Adobe remains a high-quality business with strong fundamentals. Its leadership, though not founder-led, benefits from CEO Shantanu Narayen’s long tenure. While insider ownership is low, Adobe’s reputation as a top workplace and its strong brand value underscore its resilience. The company boasts >95% recurring revenues through its subscription model, ensuring stable cash flows. Adobe’s commitment to innovation is evident in its 18.3% R&D spending, though it has been more of a follower than a leader in recent years.

Financially, Adobe remains robust, with >40% free cash flow margins and >24% ROIC. Revenue growth, though slower, still supports a compelling long-term compounding story. The competitive landscape has evolved, with challengers like Canva and Figma offering viable alternatives. However, Adobe’s depth, integration, and switching costs keep it dominant, especially among enterprises that value interoperability. Legal uncertainties in AI further strengthen Adobe’s position, as its Firefly AI models emphasize copyright safety, unlike some rivals.

The company’s segment mix remains attractive. Document Cloud is expanding at a 19% CAGR, providing strong upselling opportunities. Experience Cloud, driven by enterprise adoption, is growing at 13%. Creative Cloud, its core segment, maintains steady 10% growth. New AI-driven products like Firefly and GenStudio are still in early stages but could be significant revenue drivers.

Valuation-wise, the risk-reward appears compelling. A bearish case assumes slowing revenue, margin pressure, and weak sentiment, leading to poor returns. Conversely, a bullish scenario with stable margins, >10% revenue growth, and improved market sentiment could see Adobe doubling in value within five years.

Adobe Inc. (ADBE) is on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 117 hedge fund portfolios held ADBE at the end of the fourth quarter which was 123 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.