Adobe Systems (ADBE)

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.

Value's deteriorated because of low-cost competition. Product prices are too high. Many investors don't think it can monetize on its AI capabilities. Getting into cloud, but can't compete with MSFT, AMZN or GOOG. Figma (a takeover target it failed to acquire, but which had a wildly successful IPO yesterday) can do exactly the same thing at a fraction of the cost. Don't catch a falling knife.

Not as though they make buggy whips. Lots of different products in everyday activities, such as the PDF option if ChatGPT fails to work. This presence is likely to continue. 

If you own it and it's been painful, you could try the 1x2 call spread discussed earlier in today's show. Or you could look to generate some call premiums by selling some upside calls. On a stock that's been beaten up like this, the option prices are typically high. So if you want to start extracting some premium from that, there's definitely an opportunity to do that.

A tough call. Many have switched from Adobe to the cheaper Figma. Let the Figma deal come and see what happens; you could get Adobe cheaper.

Still stands out, but the fear is that it won't in the world of AI. And that's why it looks particularly interesting. Good earnings, upped guidance, yet stock fell. Valuation has collapsed to 17x PE. Still likely to grow double-digit EPS this year, and consensus is still 14-15% EPS growth over the next 3 years. 

There is more competition, but it's spending 18% of sales on R&D, so something compelling will turn up. No dividend.

Now cheap at $380. This reminds him of IBM or Oracle who hadn't grabbed the current trend, but Adobe has just released Firefly. He sees more upside than downside.

Is at risk of single-digit revenue growth in 2025, and the last time that happened was 2014. He sold. 

She got sick of holding this, because they have trouble with Photoshop--now people can use the tools found in PS elsewhere. She sold before the quarter. Also with Meta, clients can create their own ads using Meta's tools. Adobe hasn't moved fast enough to develop such tools.

He bought more. They beat top and bottom lines, and raised guidance. He's a value investor. Sure, the share price has been terrible, but their earnings estimates are starting to rise and they're buying back share to reduce the share count 5% in the past year. They are meeting the competitive threat through their beats and guidance. They outperform consistently. Eventually, the share price will rise.