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Again in November, I wrote about why I believed Adobe (NASDAQ:ADBE) inventory regarded glorious worth as we headed to the top of the yr. But up to now in 2026, the share value is down 23%. Some folks say the corporate might be disrupted by AI. Right here’s why I merely don’t agree.
Dissecting the information
Let’s first delve into the AI disruption story that’s swirling in the mean time. Some traders fear that generative AI threatens Adobe’s core enterprise (inventive software program). New AI instruments from rivals (resembling Anthropic and Canva) promise simpler, cheaper inventive workflows. The concern is that this might scale back demand for Adobe’s legacy subscription merchandise, resembling Photoshop. If this proves to be the case, it could have a severe damaging influence on the corporate.
The opposite AI angle hurting the enterprise proper now could be its capacity to monetise improvements. Adobe is working arduous by itself AI improvements, which it believes can increase profitability sooner or later. Nevertheless, some are apprehensive in regards to the quantity of capex being allotted right here, given the restricted outcomes up to now.
Banging the drum
Don’t get me improper, these are dangers going ahead. The transfer decrease within the share value exhibits these elements must be taken critically. Nevertheless, the pessimistic view of the corporate’s long-term prospects is misplaced, I really feel.
The newest quarterly outcomes from December confirmed document income of $6.19bn, up 10% from the identical interval final yr. If the corporate had been actually being overtaken by rivals and cheaper options, the enterprise wouldn’t be recording document figures like this.
The CEO commented that “by advancing our progressive generative and agentic platforms and increasing our buyer base, we’re excited to focus on double-digit ARR development in full-year 2026.” So it’s clear the main focus is on growing AI options to assist not solely retain but additionally increase buyer acquisition. After all, it stays to be seen if the anticipated development in income materialises this yr, but when it does, then I battle to see how the inventory gained’t rally from the excellent news.
Lastly, it now has a price-to-earnings ratio of 15.4. For comparability, the typical ratio for the Nasdaq is 23.71. Based mostly on this, I really feel a number of the unhealthy information is already factored into the inventory. It could possibly be seen as undervalued relative to the tech-heavy index. So even when I’m improper about my view, it’s arduous to see how the share value may fall considerably from right here, given the valuation.
General, Adobe isn’t a low-risk inventory for traders. It clearly has some robust points to navigate this yr. Nevertheless, I feel the pessimism not too long ago surrounding the corporate is de facto misplaced. If traders agree with my reasoning, it could possibly be a very good inventory to contemplate including to a portfolio.
