Adobe Systems (ADBE)

Start your analysis with the market -- NASDAQ had 87% of companies in an uptrend in July, now that's only 36%. Breadth has been narrowing.

Then look at the sector. Software sector has been relatively underperforming for a couple of months, trading below key support levels. Remember that 70% of your return is being in the right neighbourhood, and this sector's trading below the 200-day MA.

Down at the company level, this name has some challenges. His firm uses Adobe a lot less now that they can use generative AI. Don't buy one of the weakest stocks in a weak sector. Instead, he looks for the strongest sectors on a relative basis and buys the leading stocks within the group.

"Rumours of the death of application software are premature." So many names are under pressure with concerns that AI will remove the need for software-embedded systems. Trading at 16x forward PE, the worst is baked in. Basic programs will still be used, and can implement AI to a large extent. In the short term people aren't going to rip out software they've spent $$ on, though they may migrate over time. 

Stock market tends to worry too much, and this creates buying opportunities. This is one of them. No dividend.

About $120 higher to analysts' target from where it's trading today. So you'd think it was a buy. But it's a software stock, and there's a lot of talk about how AI might cannibalize software companies. 

He trades it by selling short-dated puts and calls. Volatility in marketplace is keeping volatility on ADBE options relatively high.

They made their last quarter, but that was mainly due to them raising their prices. He'd rather see organic growth or new deals like Workday is.

Earnings are tonight, so who knows what will happen? The narrative is very negative. But it continues to add ~10k subscribers a day to its Photoshop suite. Continues to deliver good, solid topline growth. Trading at half the valuation of 12 months ago, very attractive risk/reward.

Margin of safety is very high with a long-term view. It's investing heavily in its own AI suite of products. Not only Photoshop, but also document cloud business and CRM software.

They report Thursday. Has fallen dramatically out of favour, similar to Salesforce which reported a big earnings surprise, but disappointing guidance. The street feels that software as a service is vulnerable to AI. Adobe has the best product, though. Is it enough to lift the stock?

Valuation fairly attractive, low relative to other mega-cap tech names. Chart doesn't speak to a positive buy, lower lows and lower highs. Price is below a falling 200-day MA. Investment community has shown disdain for every announcement on AI.

Honestly, nobody knows how this will play out. But for companies like Adobe, the presence of AI has not hurt their recent quarters.

Capital allocation framework and organic growth prospects of AVGO are better than ADBE. 

AVGO is in his dividend growers mandate, with very compelling organic growth. Over coming 3 years, earnings expected to grow 20% and the dividend along with them. Software companies are spending all the $$ in the AI race. Who's getting it? The hardware makers, so chip makers are well positioned. Continues to buy.

AI has penetrated what Adobe does and has reduced the spend on Adobe products. It's difficult for them. She eventually sold it.

The chart looks terrible. Consumers want the cheapest software, even the apps on smartphones, and this hurts Adobe.

He sold it two years ago, because the valuation was expensive and had questions about their AI transition. Also, them not buying Figma was another factor. He still wouldn't buy it. Software companies are being challenged by AI.

He will reserve final judgement until the next earnings report in September. If they show weak results, or good results but the street doesn't care again, then he will sell. But he doubts that. Everyday, we use PDF files. There's competition, but Adobe is doing a good job.

Views it the same way as Intel. He feels the investor's pain, but finally got out of the way. Slow on execution with AI, and hopes this will change. Firefly had pretty good fanfare and brought many software components together. Doesn't think AI will eat their lunch because AI is more about single solutions than multiple solutions. Lots of brand loyalty. 

Will still be around in 3 years, but 10 years could be a different story.

It has surprised earnings for many, many quarters in a row, and have been buying back shares. It isn't news that AI is troubling this stock, but so far it hasn't shown up in the results. The AI impact is overly priced in, seen whenever they report each quarter some outperformance. That said, he's giving this one more earnings season.