Adobe: Does The AI Threat Pose an Opportunity For This Compounder?

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Are you tired of the AI discourse yet? Good, let’s talk Adobe Systems (NASDAQ: ADBE).

Ryan pitched Adobe on the podcast this week. He has added the stock as a starter position in his portfolio.

I will be completely honest, I am about as close to the Adobe story as Nikola Motors was to actually producing a hydrogen fuel cell truck (RIP).

But here’s what I do know.

Adobe has generated a 238,000% total return since its IPO 50 years ago. Its revenue has gone up and to the right ever since it made its cloud transition. Cash flow conversion is great, and management consistently repurchases stock.

And, it now trades at an EV/EBIT of 25:

Perhaps it gets cheaper from here. I don’t know. The dip in price coupled with the historical attractiveness of the business at least makes it something interesting to look at.

The stock is down because of a narrative that AI will destroy the business. Ryan says it is time to embrace this uncertainty as an opportunity for investors. We do not know for certain how Adobe’s business will be affected by AI (it could be positive), but we do know that existing solutions have very high switching costs.

Ryan believes the business can grow revenue at around 8% - 10% a year going forward. Add in share repurchases and you likely get a good return over the next 5 - 10 years.

Listen to the full episode at the links above.

-Brett

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