Adobe: Undervalued King of the Creators, caught in an AI rethink

Welcome back to The Omaha Verdict where I unpack stocks in plain English (no financial degree needed).

Today I’m breaking down a company that’s been a verb longer than Google: Adobe ($ADBE).

Omaha Verdict Score™: 13 / 15

Adobe ($ADBE) is a strong, all-time classic. A software veteran that’s consistently delivered solid growth, stayed ahead of tech trends, and built products that define entire industries.

But the stock trades like it’s lost the plot, despite that steady innovation and performance.

Lately, the market just doesn’t seem to care.

➔ The stock has quietly dropped over the past few months
➔ Trump’s recent tariffs hit it again
➔ Valuation has compressed despite solid performance

While… under the hood, Adobe looks robust, and in my opinion, soon it might be better than ever.

➔ Well-run, no debt
➔ AI very well integrated across the product line
➔ Expanding beyond creative tools into digital marketing infrastructure

Adobe remains one of the most solid companies out there with strong fundamentals, smart strategy, and steady cash flow. Growth has slowed a bit recently, but with a clean balance sheet and a more reasonable valuation, it looks like an attractive entry point for patient investors.

What does Adobe actually do?

They are split across three key segments:

➔ Creative Cloud ➔ tools for designers, video editors, photographers, animators
➔ Document Cloud ➔ PDFs, digital signatures, form workflows
➔ Experience Cloud ➔ enterprise tools for digital marketing, data-driven customer journeys

They serve everyone from solo creators to global brands and they’re doubling down on AI to make their tools faster, smarter, and more accessible. Users actually rate their AI enhancements highly and Adobe was one of the few to showcase clear, practical AI use cases early on. They’ve recently built strong and promising partnerships with Amazon and Microsoft to widen distribution, and their tools backed with AI will be embedded for example in Microsoft’s Word. Their distribution will be huge!

Durable Moat ➔ 3 / 3

Adobe’s position in creative software is about as defensible as it gets.

➔ Deep user lock-in (tools + workflows + file formats)
➔ Industry standard across design, media, and publishing
➔ Strong brand recognition
➔ Expanding utility through AI (Firefly, generative fill, etc.)
➔ AI is being built in natively, not bolted on
➔ Clear strategy: product innovation, ecosystem integration, recurring revenue

Competition from Canva and smaller AI-native tools is real but mostly at the bottom or edges of the market. Adobe still dominates the high-skill, pro-user tier. And it seems like they’re going after the low-skill tier recently too, so I’m curious if they’ll finally compete well with Canva.

Management Quality ➔ 4 / 5

This is a well-run company with a long track record of smart capital allocation. CEO Shantanu Narayen has led since 2007, guiding shifts from licenses to cloud and now to AI-native workflows. His strategic vision has expanded Adobe's reach beyond creative tools into digital marketing and enterprise solutions.

➔ They spot industry shifts early and adjust before others catch on
➔ They keep the business running smoothly with strong finances and tight operations
➔ They create a company culture where people are encouraged to be creative and keep making things better
➔ They maintain transparent communication and shareholder-friendly practices

Only deduction is for some lingering regulatory headlines (investigations), but nothing has materialized into a real risk. Overall, execution has been excellent.

Business Fundamentals ➔ 5 / 5

Adobe is a machine. No real red flags in the financials.

➔ Revenue: $21.5B
➔ Net Income: $5.56B
➔ Free Cash Flow: $7.8B (+12,71%)
➔ Operating Margin: 31.35%
➔ Net Profit Margin: 25.85%
➔ Net Debt: -0.20x (i.e., net cash)

It’s still growing at 10%+ Year over Year with strong margins and little debt. The subscription model keeps revenue predictable. While they’ve lowered forecasts for 2025 raising some analyst concerns about competition and AI monetization, Adobe still plans to grow steadily, and their strategy to outplay rivals looks sharp. It’s a combination of vertical integration, native AI, platformization, and full-stack ownership. It’s less about flashy new features and more about building unmatchable depth and distribution — especially at the enterprise level, while now moving downmarket to compete with the likes of Canva.

*Full-year 2024 financial results

Valuation ➔ 1 / 2

Here’s where things get interesting.

➔ P/E: 25,0x
➔ EV/Revenue: 10.6x
➔ EV/EBITDA: 18,6x

After the recent pullback, Adobe is no longer priced for perfection. If growth even modestly continues, and AI execution lands even better, there’s real upside potential, with a decent margin of safety.

*P/E – Price tag per $1 of profit.
*EV/Revenue – Company value vs. sales.
*EV/EBITDA – Company value vs. core earnings.

⚠️ Key Risks to Monitor

➔ Macro risk ➔ Creative software and marketing spend can be cut during downturns
➔ AI execution gap ➔ They’re integrating it well, but competitors are moving faster in niche tools
➔ AI competition ➔ They’re facing competition from companies like OpenAI and others
➔ Pricing model pressure ➔ Competitors offer freemium or pay-per-output vs Adobe’s bundles
➔ Regulatory noise ➔ Nothing major yet, but still on the radar
➔ Valuation reset if growth slows ➔ Multiple contraction could continue if the market expects faster growth

Bottom Line

Adobe’s stock has pulled back, partly due to AI hype fatigue, tariffs, softer 2025 forecasts, and analyst skepticism. But the business is still strong with high margins, solid cash flow, and a clean balance sheet. Adobe’s been through shifts before and always came out stronger. With the current valuation reset, there’s enough margin of safety here to make it a solid long-term hold, in my view.

➔ Strong, diversified product portfolio
➔ AI-native product evolution
➔ Expanding Total Addressable Market through marketing tech and solo-creators
➔ Stable revenue, strong margins, net cash balance sheet

Right now, it’s trading well below what the fundamentals justify.

If you want exposure to design, content, and enterprise marketing tools with a real business behind it Adobe looks like a high-conviction hold.

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Financial Disclaimer

Disclaimer: This newsletter is for informational purposes only and is not financial advice. I’m not a financial advisor, and nothing here should be taken as a recommendation to buy or sell any stock. Always do your own research and consult with a professional before making any investment decisions.