Adobe Systems (ADBE)

He bought more personally, because fears are overblown. Yesterday's earnings and guidance were good, but not enough to put the bear case to bed. He's not happy the CEO is leaving, but is a buy opportunity. Sales growth is over 10% and PE is 11x and free cash of 11% is also growing. They have bought back 10% of shares over two years and will continue. It feels lousy owning it now, but he will do well with this in time.

Should have pushed more to buy Figma. Now stuck in a dinosaur state. CEO change might help turn the ship around.

Continues to grow revenue (10% on the topline), buying back shares. Trades at very low multiple. Product is well-known and familiar. From its communications, people had high expectations on how AI would change its business, rather than ADBE just incorporating AI and letting that speak for itself. No dividend.

A name to look at in the beaten-up software space.

AI hype overkill. The business is not going away. Everyone needs an Adobe Reader on their computer, and what will replace that? Stock's fallen significantly -- do you want to catch a falling knife? Have to wait for a floor before entering.

It's hard to replace an operating system that Microsoft makes, but you can replace Adobe's security software to protect your documents.

He bought more shares. The software apocalypse is totally overblown. How many PDFs did you open today? Anthropic won't replace Adobe anytime soon. Trades at only 13x PE. They grow their topline 10% annually and bottom EPS around 15%. The PE fell from 30x from 3 years ago. It's too cheap now.

Here's another of these software stocks. They will come back, eventually. All the software companies are talking about how they'll integrate agents. But then Anthropic came out with a tool that'll can do all the stuff that Adobe sells. 

He'd get out of the way. He gets out of positions in thirds. Another 2-3 earnings periods are needed for things to settle down. You don't have to rush in to start a position; you'll get another chance.

The narrative is that AI will eat all software. There is a kernal of truth, but Adobe is still growing at double digits in revenue and growing in EPS. Are adding a lot of new subscribers to its creative cloud business and subscription business every quarter. His daughter is a creative and consider Adobe indispensable for her business. Adobe is embedding AI into its products. Also, its PE has fallen from 35x to 15x, which is very appealing.

We think it has the potential to bounce, and it is now trading at very cheap multiples of 12.6X forward earnings. But, the AI situation is evolving, and it is not quite clear how large the potential disruption to its business could be, but we are seeing a lot of captiulation across software names. We feel if manage executes well here, and software names begin to demonstrate their internal AI tools are creating value, then we feel that it could eventually re-rate. Forward earnings growth is expected to be in the low double-digit range, and analyst estimate trends are mostly flat.
Unlock Premium - Try 5i Free

Has had a terrible couple of years, but earnings continue to come in better than expected. The stock is starting to respond; it didn't get crushed in December's tax-loss selling is proof.

You'd expect tax-loss selling to pummel software names like Adobe, but it didn't happen. After 3 years of hearing that AI will kill their the software business, the world is recognizing 3 years of great profits from these companies that are well-run. Software stocks probably will perform in 2026.

Over-hyped the AI side of its business too much, and that hurt it a lot. People have been predicting it's going to disappear (same as GOOG) -- that won't happen. Great opportunity in AI with the creative products it offers, but it will take time. Failed acquisition of Figma also hurt. But all those concerns are already in the stock. At these levels it's 14x PE, has rarely traded so cheaply. Compounding machine.

Grown topline by ~10% since 2020, and bought back 10% of shares. Great business, everyone still uses it. No dividend.

Are concerns that AI will kill Adobe and eat its lunch, but Adobe has been outperforming quarter and quarter for years. Also, sell-offs after reporting have been shrinking. It reports next week.