ADBE is a buy despite AI-disruption fears: shares fell two-thirds from their peak and 32% this year after free-product offers cut projected recurring revenue by about $500 million, yet revenue reached $6.76 billion, up 13% with AI revenue topping $650 million, and it trades near nine times expected earnings.

Now, let's move on to the second stock, Adobe ( stock symbol: ADBE), which was priced at around $238 at the time of recording this video. In late 2021, the stock price was close to $700.

Shares of Adobe, the developer of Photoshop, Premiere and Acrobat software, have fallen by about two-thirds from their peak, and are down 32% this year alone.

What is the reason? First, fear. The market believed that AI tools for photos and videos would eliminate the need for users to pay Adobe fees. Then this year , Adobe intensified this decline.

In June, the company decided to offer more of its products for free to attract new users, and postponed planned price increases. The company suffered an estimated loss of about $500 million in its projected recurring revenue, and its chief financial officer resigned .

The stock price fell to around $193 in late June. Then on September 3, the company announced the appointment of a new CEO in December, and the stock price fell by about 7% the following day.

But let's look at the company's actual performance. In the last quarter, Adobe achieved record revenues of $6.76 billion, an increase of 13%. Its total recurring revenue is $27.5 billion .

Revenue from its AI- powered products exceeded $650 million, with annual growth exceeding 150%. Reports indicate that there are more than one billion monthly active users, and the company achieved a record operating cash flow of $2.52 billion in a single quarter.

What I personally like is that Adobe is using this cash flow to buy back its shares. Their share count has fallen by about 6% in just one year, and they still have about $24.5 billion left in their share buyback plan .

This is roughly equivalent to a quarter of the company's value at its current price.

Also noteworthy is their valuation, which is nearly nine times the expected earnings, with a price- to-growth ratio (PEG) of approximately 0.64. Even based on past earnings, their shares are trading at a fraction of the typical earnings multiple over the past ten years.

Morning Star even ranked Adobe's rating as one of the lowest in its coverage of enterprise software.

Think of it in terms of levels, as I explained in this video. The base of the pyramid consists of shares of well-performing, inexpensive companies, such as CI and ADBE.

Look at Adobe this year. The stock price hit a low of around $193 in June, then rose by about 50% by the end of August, before falling by approximately 20% .