Struggling Shares: Is It Time to Buy Adobe?
(NASDAQ: ADBE) shareholders are facing a tough reality in 2024, as Adobe’s stock has fallen roughly 30% over the past year. Despite impressive growth and record profits, uncertainty about its artificial intelligence (AI) strategy has left investors concerned. Let’s explore why Adobe remains a strong candidate for recovery heading into 2025.
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1. Adobe’s Leadership in AI Innovation
For over three decades, Adobe has excelled in various software categories, including creative media, marketing tools, and document management. Its flagship products like Photoshop and Illustrator are widely used, from large enterprises to hobbyists.
A significant factor behind Adobe’s ongoing success is its commitment to innovation, particularly in integrating AI and machine learning features across its applications. This enhancement not only boosts productivity but also improves user experience. With generative AI models like Adobe Firefly, the company is enhancing creative processes in new and exciting ways.
While companies such as Canva and OpenAI are emerging competitors with their own AI-driven tools, Adobe’s comprehensive offerings maintain its leadership position in the industry. As the company leverages AI, it prepares to tap into new growth avenues, making it an attractive option for long-term investment.
Image source: Getty Images.
2. Robust Growth Predictions
Adobe’s recent performance has been noteworthy. In the fourth quarter of fiscal 2024, which concluded on November 29, sales surged by 11% from the previous year, accompanied by a 13% increase in adjusted earnings per share (EPS). Management pointed out strong demand for its AI-driven products in the Digital Media and Creative Cloud segments.
An important metric to monitor is Adobe’s remaining performance obligations (RPO), which reached $19.96 billion at the end of the year, marking a 16% increase since last year. RPO indicates the total value of services yet to be delivered, shedding light on the company’s future growth potential.
Looking ahead to 2025, Adobe anticipates a revenue increase of 8.3% to 9.5%, with adjusted EPS expected to range between $20.20 and $20.50—a promising rise of 10.5% at the midpoint from the prior year. These projections, although slightly below initial Wall Street estimates, demonstrate a favorable operational outlook that could trigger stock price recovery in the coming quarters.
| Metric | 2024 | 2025 (Estimate) |
|---|---|---|
| Revenue (in billions) | $21.51 | $23.30 to $23.55 |
| Revenue growth (YOY) | 11% | 8.3% to 9.5% |
| Adjusted earnings per share (EPS) | $18.42 | $20.20 to $20.50 |
| Adjusted EPS growth (YOY) | 14.6% | 9.7% to 11.3% |
Data source: Adobe. YOY = year over year.
A key reason to consider buying Adobe stock now is its appealing valuation. Currently, shares are trading at under 22 times forward earnings, a significant discount compared to its historical five-year average of around 46.
This suggests the stock may be undervalued, especially given its potential for strong earnings growth and connections to critical AI trends. Compared to other tech giants like Microsoft and Salesforce, both of which have forward P/E ratios around 31, Adobe presents a more attractive option for value-conscious investors.
ADBE PE Ratio (Forward) data by YCharts.
In Conclusion
Optimism surrounds Adobe as the company appears well-positioned to deliver shareholder value moving into 2025. The recent stock decline could present a prime opportunity for new investors to engage with Adobe’s narrative of growth and innovation.
Should you invest $1,000 in Adobe right now?
Before purchasing Adobe stock, consider this:
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Dan Victor has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Adobe, Microsoft, and Salesforce. The Motley Fool recommends long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. View the full disclosure policy for details.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
