AI Is More An Opportunity Than A Threat For Adobe

Summary

• Adobe's fundamentals have improved, with strong Q1/25 results, robust subscription growth, and consistent margin expansion supporting a cautious 'Buy' rating.
• Accelerated share buybacks at lower valuation multiples are a smart capital allocation move, enhancing shareholder value while growth opportunities are evaluated.
• AI presents both opportunities and threats, but Adobe's integration of AI features and high switching costs help maintain its wide economic moat.
• Despite recent underperformance, Adobe's current valuation and intrinsic value analysis suggest the stock is now undervalued and a better buy than in recent years.

JHVEPhoto

My last article about Adobe Inc. (NASDAQ:ADBE) – published in December 2024 – was titled “Valuation stretches as growth moderates” and in the conclusion I wrote:

In my opinion, Adobe is slightly overvalued and remains a “Hold” at best. The business is

Analyst’s Disclosure:I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.