To The Moon

$Adobe(ADBE)$

Adobe (NASDAQ: ADBE) just posted quarterly earnings that beat expectations on both the top and bottom lines. Yet despite the strong report, the stock barely moved, closing up just 2.6%. For a company that has seen its market cap decline by 40% over the past year—falling from a lofty 55x earnings multiple to just 16x—this muted reaction raises questions.

Is Wall Street underestimating Adobe’s resilience? Or is investor skepticism around artificial intelligence (AI) justified? In this deep dive, we’ll review Adobe’s latest results, assess its AI strategy, revisit its underappreciated moats, and evaluate whether the stock offers a rare opportunity for long-term investors.

Earnings Overview: A Strong Quarter in the Face of Skepticism

Adobe’s Q3 earnings report beat across the board:

• EPS: $5.31 versus $5.18 expected

• Revenue: Modest beat, but still 11% year-over-year growth

• Q4 Guidance: $5.35–$5.40 EPS, slightly above consensus of $5.34

This is not the profile of a company in decline. Instead, Adobe continues to deliver steady double-digit growth despite fears that AI will disrupt its creative software dominance.

The revenue picture is particularly telling. Over the past seven quarters, Adobe’s year-over-year growth has consistently hovered between 10–11%. If AI were truly eroding Adobe’s business, we would expect that trend to weaken—slipping from 10% to 7%, then 5%, and eventually flat or negative. But that hasn’t happened. The narrative that “AI is killing Adobe” doesn’t align with the actual numbers.

Adobe’s AI Strategy: More Than Just Hype

During the earnings call, Adobe executives mentioned “AI” no fewer than 110 times. Some investors dismissed this as marketing spin, but beneath the repetition lies a concrete strategy. Adobe views AI as the biggest technology shift in decades, and management has outlined two major avenues for monetization:

1. AI-Influenced Portfolio

This includes existing products—such as Photoshop, Illustrator, and Premiere—that are enhanced with AI features. In 2023, this portfolio generated $3.5 billion in annual run-rate revenue. Today, that figure has already surpassed $5 billion, reflecting accelerating adoption of AI-powered upgrades.

2. AI-First Products

Adobe is also rolling out entirely new offerings built on AI, such as the Acrobat AI Assistant. Management initially guided for $250 million in annual run-rate revenue from these products by the end of 2025. Yet Adobe has already hit that target a full quarter early.

While $250 million is a drop in the bucket compared to Adobe’s multi-billion-dollar business, the trajectory is what matters. Going from zero to $250 million in under a year shows that demand exists—and positions Adobe for much larger AI-driven monetization opportunities down the road.

The Overlooked Moat: Acrobat and the Ubiquity of PDF

When most people think of Adobe, they think of Photoshop or Creative Cloud. But Adobe’s most underrated asset might be Acrobat and the PDF format itself.

• 650 million monthly Acrobat users

• 3 trillion PDFs circulating worldwide

• 400 billion documents opened annually within Acrobat

This entrenched global standard provides Adobe with a massive monetization opportunity. While Microsoft has made attempts to push alternatives, PDFs remain deeply embedded in personal, business, legal, and governmental workflows.

With generative AI, Adobe could transform how users interact with PDFs—searching, summarizing, translating, or even editing them with AI assistants. This represents a significant future revenue lever that the market may not be pricing in.

The Revenue Trend: Where’s the AI Disruption?

Investors have become increasingly wary of Adobe due to AI narratives. The fear is that tools like MidJourney, Canva, and even Microsoft’s AI initiatives will eat into Adobe’s market share.

But so far, this hasn’t shown up in the financials:

• Revenue growth remains steady at 10–11%

• EPS continues to outpace estimates

• Operating margins remain robust

If AI disruption were as severe as bears claim, Adobe’s growth would be decelerating meaningfully by now. Instead, the business looks remarkably resilient.

This disconnect highlights a broader lesson for investors: narratives can diverge from numbers. While headlines scream that AI will destroy Adobe, the actual financial statements suggest the opposite—that Adobe is integrating AI effectively and reinforcing its competitive edge.

Share Buybacks: Adding Shareholder Value at the Right Time

One of Adobe’s smartest capital allocation moves has been aggressively repurchasing shares at lower valuations. In the past, Adobe traded at 50x earnings, making buybacks less accretive. Today, at just 16x earnings, buybacks create substantial shareholder value.

The company has already reduced shares outstanding meaningfully and maintains a strong balance sheet to continue doing so. This disciplined approach allows Adobe to return capital to shareholders without sacrificing growth investments.

Valuation: Where the Upside Lies

Now let’s talk numbers.

• Current EPS (2025E): $20.70

• Expected EPS growth (2025–2030): 11% CAGR (conservative)

• Exit multiple assumption: 20x earnings

Under this framework, Adobe would be worth about $693 per share by 2030, representing 92% upside from today’s $362 price. That equates to roughly 14% annualized returns—very attractive for a blue-chip software leader.

For those targeting a 100% return, the ideal entry price is around $347. That’s just 4% below current levels, meaning investors don’t have to wait for a huge dip to get compelling long-term returns.

Competitive Risks: Can AI Startups or Big Tech Take Market Share?

Of course, no analysis is complete without considering risks. Adobe faces several:

1. Generative AI Tools – Companies like MidJourney, Stable Diffusion, and Canva are democratizing design. These could pressure Adobe’s pricing power if creative professionals migrate to lower-cost alternatives.

2. Big Tech Competition – Microsoft and Google are embedding AI into productivity suites. If AI-enhanced Word or Google Docs encroach on PDF workflows, Adobe’s moat could narrow.

3. Execution Risk – While AI adoption is ramping up, Adobe must ensure that its products remain indispensable to both creative professionals and enterprises. A misstep could open the door for competitors.

Still, Adobe’s scale, brand equity, and ecosystem make it difficult for rivals to dislodge its position overnight. The risks are real but not yet materializing in the financials.

Market Sentiment: Why the Stock Isn’t Reacting

So why did the stock barely move after such a strong quarter? The answer lies in sentiment.

After a 40% decline, investors are conditioned to expect disappointment. The overemphasis on AI mentions (110 times) may have fueled skepticism rather than excitement. Many see Adobe as “talking the AI talk” without delivering breakout revenue growth from it—at least not yet.

In other words, the stock is fighting both narrative fatigue and the overhang of past overvaluation. But sentiment cycles shift. If Adobe continues to deliver consistent 10–11% growth while AI revenues scale, Wall Street may eventually re-rate the stock back toward a more appropriate 18–20x earnings multiple.

Verdict: A Long-Term Buy at Attractive Levels

Adobe’s latest quarter reinforces the idea that this is still a durable, cash-generative, growth-oriented business—not a company being disrupted out of relevance.

• Earnings beat expectations

• Revenue growth remains strong at 11%

• AI initiatives are already producing measurable results

• The PDF ecosystem provides a hidden moat

• Valuation has compressed to historically attractive levels

At just 16x earnings, Adobe looks like one of the few large-cap software stocks trading at a discount. My base-case valuation points to nearly 100% upside over five years, with an ideal entry zone between $347 and $365.

For patient investors, this is an opportunity to own one of the world’s most entrenched and innovative software companies at a valuation not seen in years.

Final Verdict: Buy Adobe in the mid-$300s, hold for five years, and let compounding—and sentiment—do the heavy lifting.