$ADBE · Everything Money · 2026-11-09

The most hated company's stock has fallen by nearly 30% this year alone, and by more than 50% over the past three years. Everywhere you look , you hear people shouting that artificial intelligence will destroy the company.

But the strange thing is that it has just achieved record revenues, generating nearly $10 billion a year in positive free cash flow, and recently agreed to a $25 billion share buyback .

Is Adobe really dying, or is Wall Street making a terrible mistake? Because the real question is not whether Adobe is scary, but whether the stock price is undervalued.

To be honest, I still own shares in it and I still buy them. Adobe produces the software that creators around the world use every day. Photoshop for photos, Illustrator for design, Premiere for video, and Acrobat for PDF files.

It serves two main categories. First, professionals in the fields of creativity and marketing who rely heavily on tools such as Photoshop, Premiere, and the AI-powered Firefly image editing software.

Secondly, business people and ordinary individuals who use Acrobat and simpler applications such as Adobe Express.

Approximately 97% of Adobe's revenue currently comes from individuals and businesses who pay monthly or annual subscription fees to use its tools. Guys , it's a great model. You acquire a client , continue to offer excellent programs, and generate consistent payments year after year.

But this model suffers from a major weakness in the age of artificial intelligence. Many programs are priced according to the number of users. This means the company pays for every employee who uses the software.

So, the troubling question becomes: What will happen if artificial intelligence enables a company to do the same work with far fewer employees? Well, fewer employees means fewer paid programs.

Imagine a company with 100 employees paying for 100 programs. If artificial intelligence enables them to do the same work with 70 employees, it could mean 30% fewer paid programs, and therefore 30% less profit for the software company.

This is the real fear that hangs over the entire sector, and that is why many software companies have started charging for actual usage and services provided, and not just for the number of users.

Let's take a look back at this difficult year; it has been a year full of ups and downs for the company. The stock price has fallen by about 58% since the end of 2023, despite the company continuing to grow, and I will explain that to you later.

What is the reason? Well, a simple idea has taken root: artificial intelligence will make Adobe software much less necessary. New tools from companies like Canva and Figma, as well as a wave of AI startups , now make it possible to create professional photos and videos in seconds.

Sometimes you don't even need to open any of the Adobe applications. The truth is now clear: Adobe is dying.

On top of all this fear came a wave of changes in senior management. In March, Shantanu Narayan, Adobe's CEO for 18 years, announced his resignation, and the stock price fell by about 6% that day alone.

Its chief financial officer left, and the head of the creative business division resigned. Anil Chakravarthy took over as the new CEO on December 1st, and it is worth noting that he comes from the world of large corporate software .

This could be of great importance as Adobe becomes increasingly reliant on large corporate clients . This is a radical change that adds to the company's already volatile stock price situation.

But Adobe did not give up; instead, it resisted fiercely. It acquired two artificial intelligence companies, Cymrush for about $1.9 billion and Topaz Labs for about $340 million, to strengthen its position in this field.

It integrates AI assistants directly into Photoshop, Premiere, and all its applications. It has also partnered with Nvidia to speed up operations, and its innovative tools are integrated into other popular AI-powered chatbots.

When the company announced its earnings in September , it exceeded expectations. However, the stock price fell slightly due to lowered expectations. On the positive side, the stock has rebounded by more than 30% from its lowest point this year.

Therefore, it is clear that some investors have begun to reconsider it. This is the aspect that long-term investors find really interesting.

We have already seen Adobe make such a big and risky change before. Let's go back to 2012. At that time, Adobe was selling its software in the traditional way. You pay a large sum upfront, get the CD, and own it forever.

Then Adobe made a bold bet that many hated. She abandoned that model and switched everyone to monthly subscriptions. At first, it was extremely painful. Adobe's revenue fell by about 8% the following year because it gave up all those large upfront payments.

Revenues declined from approximately 4.4 billion to 4.1 billion. Many saw it as a grave mistake. But subscriptions grew from a tiny percentage to half of the company's business in just two years.

And here's the surprise. The stock performed exceptionally well during that transition period. The subscription model ultimately transformed Adobe into one of the most reliable sources of revenue in the software world.

So, the important question is: Is Adobe's heavy focus on artificial intelligence paying off? Let's take a look at the numbers. Its products in the field of artificial intelligence are growing at an enormous rate.

Its revenues jumped by more than 150 % in one year to exceed $650 million. A huge amount, isn't it? Well, the fact is that this still represents only about 2.4% of Adobe's total recurring revenue of $27.5 billion.

At the same time, the company as a whole is growing at a rate of 11% annually. Guys, I repeat, 11% annually. Is this a sign of decline?

Guys, there are some good signs. Adobe now has more than one billion monthly active users, and more than 100 million people use its free creative tools . This is a huge database that can be converted into loyal customers over time.

We discussed the three positive scenarios in the video: subscription business growth, record revenue, increased subscription revenue in both customer segments, and more than one billion monthly active users.

Guys, the value of this number is enormous. One billion people! The world's population is 8.3 billion people, which is equivalent to 12.5% of the world's population. Total annual recurring revenue for artificial intelligence has grown by more than 150% . Amazing!

Adobe is adding artificial intelligence features to its familiar products and seeking partnerships, including working with Nvidia on creative and interactive workflows , and collaborating with the National Hockey League (NHL) to improve fan experiences.

There are many positive developments, many things that are improving the situation, and I have more charts for you here. These are their revenues from fiscal year 2018 to 2025 by region.

They are all constantly increasing. Despite the simplicity of this graph, I believe that this period marked the beginning of the spread of artificial intelligence. All the figures are still higher than they were then.

I'm not saying this means it won't decline, but this is a strong indication that people will continue to use these products.

In addition, both ChatGPT and Cloud have partnerships with Adobe to use their tools within their software.

As for the negative scenarios, which are no less important, generative AI and interactive AI may intensify competition and change the way customers access or use software. Secondly, Adobe is approaching a leadership transition, coinciding with managing other changes in senior positions.

We've talked about that before . Interestingly, I admire the CEO's resignation. The current CEO might be thinking : "I've been here for 18 years. It's time for someone new to take the reins during this uncertain period."

I think this is actually a positive thing. Third, Adobe's announcements about AI products and partnerships still need to translate into sustained customer use and tangible business results.

Guys, a lot of things are unclear. But remember, there may be a lot of unknowns, and the stock price is low enough that it's worth the risk . This may sound exaggerated, but if you only have a 1% chance of a project succeeding , but you will get a thousand times the return when it succeeds , you should repeat it every time because you will make a lot of money in the end.

The same applies here. What are the chances of these projects failing with such a large cash flow?

Now let's look at some real figures about Adobe, because that's the interesting part . Adobe's market capitalization is approximately $100 billion. This is the share price . Its total revenue is approximately $26 billion .

Guys, it earns an astonishing 89 cents on every additional dollar it makes, and generates more than $10 billion in cash annually, making it one of the most profitable software companies in the world.

Its price is very low compared to its history. Remember, we are not comparing it to its history in general, although many people say so. Here we compare it to the average of companies in the Standard & Poor's index .

Folks, what's interesting is that its free cash flow continued to rise for years even as the share price continued to fall. Peter Lynch always says there is nothing better than a stock that falls while the company's fundamentals improve .

So, this is a strange aspect of all this. Cash is rising, and the price is falling. This is in the best interest of the right investor.

Now, there is another very powerful tool here, which is share buybacks. I will explain this to you in our eight pillars. Adobe recently agreed to repurchase $25 billion worth of its shares.

Think about this for a moment. The entire company is valued at approximately $100 billion as of today . This means buying back a quarter of the company. If there are 10 outstanding shares, and you own one share, you own 10% of the company.

If the company buys back 25% of its shares, it will still own one share out of seven and a half shares . Your ownership has increased from 10% to approximately 15% of the company.

Therefore, it will receive 15% of its growing cash flows, which will improve its financial position. When a company buys back a large portion of its shares at a low price, each remaining share owns a larger stake in the company, and this in turn increases earnings per share.

So, the question that arises for the analyst is: Is Adobe's stock price low because the market is wrongly afraid of artificial intelligence, or because its growth is about to collapse or even enter a negative phase ?

Let's analyze the numbers to see if they point to an attractive investment opportunity or a trap.

Once again, folks, the company's market capitalization is $100 billion, and its corporate value is $113 billion. The reason I am comparing these two companies is that they both indicate that their debts are estimated at around $13 billion .

Market value versus company value . But do you know? Over the past five years , their average free cash flow has been $8.3 billion, reaching $11 billion last year. They can pay off their debts in approximately 13 to 14 months .

Guys, this is amazing! Regardless of who you are, this is unbelievable.

Next, let's look at the return on invested capital . This is an important indicator for companies of this size. It generates high returns and constantly improves on the money invested in its business.

This confirms to me that this company deserves a price higher than the market price, not a lower price.

Now, look at their profit margin. Excuse me, that's their profit margin, which is almost fixed, which is rather surprising considering their total profit is 89 cents per transaction.

In fact, I am surprised that the profit margin does not increase over time.

Hey everyone, look at this. Their earnings per share growth rate over the past ten years has been 30% annually. 30%, that's amazing! But we don't buy based on the past, but on the future.

Another thing I like about this is that the free cash flow far exceeds net income . This is something many people will overlook. They will look at the price-to-earnings ratio and say: 14 is a very cheap price.

But the price-to-free-cash-flow ratio is cheaper, 9.5. You're buying a company with about nine and a half times its free cash flow , while the market right now...listen, the Nasdaq 100 is at 40 or something.

This company is at nine and a half times with growth in free cash flow and revenue. It's truly unbelievable.

To illustrate this, look at revenue growth. This is the annual revenue growth. How long has this company looked like it was on its deathbed? I don't know. I don't understand. I may be wrong.

The company could still collapse, but what an amazing quarterly growth in revenue! During this period, artificial intelligence began to spread, and this began to happen in this country and throughout the world. It's truly unbelievable.

Let's take a look at their quarterly free cash flows. Yes, and by the way, around this time artificial intelligence began to spread, free cash flow decreased, and now it is rising and growing again. It's truly unbelievable.

Okay , let's take a look at the eight pillars. Who among you is surprised to see a company with eight pillars? All of them are verified. They have bought back 16% of their shares in the past five years, and have agreed to buy another 25%.

So, let me explain the concept of share buybacks. As we have seen here, I will take some time to explain share buybacks because this is very important to understand. The company generated $10.6 billion in free cash flow.

Let's see how many shares are outstanding. We move on to the income statement, and scroll down to the bottom. They have 395 million outstanding shares. Let's assume it's 400 million outstanding shares.

Good. This means the company has $10 billion in free cash flow , $10.6 billion, oops, divided by 400 million shares. Therefore, the free cash flow per share is approximately $26.

Good. Now, why is this important? Let's assume the stock price stays at $250 per share as it is now, just to balance out, and that they do a $25 billion buyback. How many shares will they buy?

Okay, they're going to buy 100 million shares , right? How do I know that? $25 billion divided by 250. So, their outstanding shares will increase from 400 to 300 million. The cash flow per share will increase from $26 to $35.

Guys, what is the value of a company that does this? Let's assume she repeats that over and over again. Let's suppose she did that two more times and the stock price remained low.

Ultimately, its earnings could reach $100 per share from free cash flow . This is the power of buying back cheap stocks. How much would you pay for a company that generates $100 per share of free cash flow ?

Let's assume you paid 20 times. This means $2000 per share. Profit, I mean cash flow, remains the same. All they did was buy back the shares. The share price rose from $250 to $2000.

This is the amazing aspect of share buybacks. Guys, if you're interested in understanding this better, watch this video again because I haven't increased any cash flow over the years.

I kept cash flow steady at $10.6 billion. They had to keep the share price low at 250 for a long time, and then they bought back the shares. If they manage to do that three times, the stock price will reach $2,000 when people finally realize it.

Again, this assumes that free cash flow will never increase from now on.

We have a special, completely free PDF file for you about Adobe and the key indicators. Click on the link below. It is a fantastic and very comprehensive PDF file. He explains all of these key indicators, reviews our hypothesis for Adobe, and talks to you about the company.

Now let's see what the analysts think about the company. Look at this. The stock is priced at $24 this year and will rise to $35 over the next four years. Well, that means growth of 17%, 13%, 14 %, 3%, and 8% respectively.

So, there is a slowdown , but it is still growth. And look at the revenue growth: 12%, 9%, 9%, 9%, and 8.5%. There is still revenue growth.

First, I conducted a 10-year analysis. I will only focus on the next ten years. We are seeing growth in return on capital, and this is an indicator of quality. First, revenue growth.

I assumed revenue growth of 4%, 7% and 10% as minimum, average and maximum for the next ten years. Profit margin is always less than free cash flow , and free cash flow is what matters most.

Therefore , I eliminated the profit margin. I focus only on free cash flow. I estimated it at 35, 38, and 41. Keep in mind that my average estimate is lower than what they have achieved over the past ten years, so I give them some leeway.

Now, what free cash flow rate would I be satisfied with for this company after 10 years? Well, the market average is between 15 and 17 in the long run. This is an excellent company with very good profit margins and very little debt, so I would give it a premium. I estimated them at 17, 21, and 25.

Finally, I set a return of 9.5% without a safety margin. This is not the return I aspire to for the company, but merely a return for displaying it in the video , to determine the intrinsic value of the company.

So, I pressed the analyze button. The stock price is currently 253. I have a low price expectation of 395, a high expectation of 950, and an average expectation of 620. If my average expectation is fulfilled and I buy at today's price, I will achieve a return of approximately 23%.

This does not mean you should rush to buy immediately, but it simply means that it deserves your attention.

I personally own shares in the company, so how can I know if it will succeed or not? no. But if I owned shares in 20, 30, or 40 companies, all with the same indicators based on conservative expectations, I would likely achieve good investment performance. This is the crux of the matter.

So, if I want to buy more shares, I use my cash flow to sell cash-guaranteed put options. This means that I am giving someone the option at a later date to force me to buy shares of the company I want at a specific price.

But this price is lower than it is today, and I will get a return for that.

So, I go to the options menu in our program. I choose a future date, let's say a month from now, December 4th. Let's assume the stock price is currently 250 or 253. Let's assume I want to buy it at $225 per share.

Someone will pay me $3 per share. This will give me an annual return of 15.3% if I repeat the process on my capital. What does this mean? Okay, if the stock price closes above $225, I will keep $3 per share and will not get the shares.

If the share price falls below $225, I will also keep $3 per share, but I will now have to buy it from them at $225 per share. So, I basically paid $225-$3. I paid 222. Guys , the stock price is now 253. So, I still get a $31 discount.

Does it seem easy? That's true, but do you know? It's simple, but the difficulty lies in the emotional aspect . Because what I've noticed is that most people expect the stock price to drop to 200, and they say: Oh my God, I could have bought it for 225.

That's frustrating. Do not sell a guaranteed cash put option except at the price you would pay today. So, I would pay 225 today if I had the chance. For this reason, I have no objection to acquiring the stock at a lower price.

I think the concern about Adobe is exaggerated. I see in their growth, revenues, profits, and the strength of all these indicators in their balance sheet, evidence that artificial intelligence will not destroy them to the extent that some believe.

It is true that their revenue from artificial intelligence has increased significantly, but it still represents only 2.4% of their total revenue. Therefore, they have enormous potential to become leaders in the field of video and image editing using artificial intelligence .

This is the most important thing. Now, I hope I'm right about Adobe. I'm not entirely sure; time will tell. when? Several years later.