Adobe
| CURRENT PRICE | PROBABILITY-WEIGHTED FAIR VALUE | FAIR VALUE RANGE |
|---|---|---|
| $250.28 | ~$320 | $210 – $470 |
| Close 5/8/26 | Bull 25% / Base 50% / Bear 25% | ~27% upside to weighted FV |
Verdict: ADBE looks materially undervalued. The stock is down 38.7% over 52 weeks[1] on AI-disruption fears, but Q1 FY26 delivered +12% revenue growth, +19% non-GAAP EPS, and AI-first ARR more than tripling YoY[2]. At a forward P/E of 10.6x and EV/EBITDA of 10.8x[1] — roughly half the S&P 500's 21x multiple — Adobe trades like a value stock despite double-digit growth, ~45% operating margins, and a $230M net-cash position[3]. Our blended FV of ~$320 implies ~27% upside, aligned with the consensus PT of $327. The bear case ($210) requires AI-native rivals (OpenAI, Canva, Midjourney) to actually displace Creative Cloud at scale — a thesis we view as plausible but slow-moving.
CURRENT SNAPSHOT
| Metric | Value | Notes / Source |
|---|---|---|
| Stock price | $253 | Close 5/8/26 [4] |
| 52-week change | -38.7% | Sharp de-rating on AI fears [1] |
| Market cap | $102B | [1] |
| Diluted shares | ~404M | [1] |
| Cash / Debt | $6.9B / $6.2B | Net cash $230M [3] |
| Q1 FY26 revenue | $6.40B (+12%) | 11% cc [2] |
| Q1 FY26 non-GAAP EPS | $6.06 (+19%) | AI ARR tripled YoY [2] |
| FY26 revenue guide | $25.9B – $26.1B | [2] |
| FY26 EPS guide | $23.30 – $23.50 | non-GAAP [2] |
| Forward P/E | 10.6x | Trailing 14.7x [1] |
| EV/EBITDA | 10.8x | [1] |
| Operating margin | ~45% | Non-GAAP [2] |
| Consensus PT | $327 | 39 analysts; Hold consensus [1] |
MACRO CONTEXT — RATES & MARKET LEVELS
The 10-yr UST yields 4.68% — a 16-month high — putting downward pressure on long-duration software multiples[5]. The S&P 500 trades at ~21x forward earnings with an earnings yield of 4.78%[6]. Implication for ADBE: Adobe trades at a forward P/E of 10.6x — less than half the S&P's multiple — implying the market has already priced in a meaningful AI-disruption discount. Multiple expansion to even market-multiple territory (16-18x) would unlock substantial upside, even before any earnings beat.
METHODOLOGY
We anchor on three lenses: (1) P/E on FY26E EPS ($23.40 midpoint), (2) EV/EBITDA on FY26E (~$11.5B EBITDA implied by 45% margins), and (3) P/E on FY27E EPS assuming +12% growth (~$26.20). Probability weights: Bull 25% / Base 50% / Bear 25%. Net cash held flat at ~$0.2B; share count flat at 404M (active buyback program offsetting dilution).
BULL / BASE / BEAR SCENARIOS
| Scenario (weight) | P/E on FY26E EPS | EV/EBITDA on FY26E | P/E on FY27E EPS | Blended FV |
|---|---|---|---|---|
| Bull (25%) AI-first products drive re-acceleration to 15%+ growth, multiple re-rates to 18x |
18x → $421 | 16x → $440 | 18x → $472 | ~$445 |
| Base (50%) Hit guide, +12% growth, multiple expands to market discount (14x) |
14x → $328 | 13x → $354 | 13x → $341 | ~$340 |
| Bear (25%) AI-native disruption accelerates, growth slows to single digits, multiple stays 9-10x |
9x → $211 | 9x → $241 | 9x → $236 | ~$230 |
| Probability-weighted | ~$317 | ~$337 | ~$348 | ~$320 |
Blended fair value (~$320) = simple average of the three method-level probability-weighted outputs ($317 / $337 / $348). Range $210-$470 spans bear-to-bull across all three lenses. Wall Street avg PT of $327 sits within our base case range.
PEER COMPARISON
| Company | Fwd P/E | Rev Growth | Notes |
|---|---|---|---|
| Adobe (ADBE) | ~11x | +12% | Cheap on growth; AI-disruption discount [1] |
| Microsoft (MSFT) | ~30x | +13% | AI-leverage premium; Copilot story |
| Salesforce (CRM) | ~13x | +10-11% | Similar P/E despite slower growth |
| Autodesk (ADSK) | ~25x | +11% | CAD/AEC subscription; activist pressure |
| Intuit (INTU) | ~25x | +12% | TurboTax/QuickBooks; AI well-received |
| SAP | ~25x | +10% | Enterprise ERP; multi-year cloud transition |
Adobe is the cheapest large-cap software name in the peer set on both P/E and EV/EBITDA, despite comparable or superior revenue growth and the highest operating margin. The discount reflects market skepticism about AI competitive risk — but the same risk exists across every name on the list and they trade at 2-3x ADBE's multiple. PEG ratio of ~0.9x is anomalous for a category leader.
Key Risks & Watch Points
- Generative AI disruption: OpenAI Sora, Midjourney, Canva, and Runway target Creative Cloud's core. Adobe's Firefly is competitive but not clearly winning.
- Enterprise subscription saturation: Mature TAM in Creative; Digital Experience growth depends on enterprise budget recovery.
- Multiple stickiness: The de-rating could persist for quarters. Catalyst-driven re-rating requires a clear AI monetization metric.
- Regulatory: Figma deal blocked; future M&A faces stronger scrutiny.
- Capital allocation: $25B+ buyback authorization is supportive but not a fundamental driver.
- FX: 60%+ revenue is international; dollar strength compresses reported growth.
What Would Change Our View
- Upside: AI-first ARR disclosure showing $1B+ run-rate, Q2 revenue beat to $6.55B+, multiple re-rating to 14-15x forward.
- Downside: Revenue growth slowing below 10%, Firefly metrics disappointing, large enterprise contract churn.
Sources
[1] https://stockanalysis.com/stocks/adbe/statistics/
[3] https://stockanalysis.com/stocks/adbe/financials/balance-sheet/
[4] https://finance.yahoo.com/quote/ADBE/
[5] https://fred.stlouisfed.org/series/DGS10
[6] https://insight.factset.com/sp-500-earnings-season-update-may-8-2026
Powered by Bigdata.com
Disclaimer
This output is for informational and research-assistance purposes only. It does not constitute investment, legal, tax, accounting, or other professional advice, and it is not a recommendation to buy, sell, or hold any security or instrument or to pursue any strategy. Information may be incomplete, estimated, delayed, or inaccurate. Past performance does not guarantee future results. Verify material facts independently and consult qualified advisors before making decisions.