Adobe stock (Nasdaq: ADBE) has fallen recently. This is also thanks to the US Department of Justice’s plan to block his $20 billion acquisition of Figma. Nonetheless, I see Adobe as a stock that can provide investors with innovation at a reasonable price. I’m bullish on Adobe stock.
Adobe needs to innovate on AI disruptors
2023 was all about the rise of artificial intelligence (AI) and its disruptive potential. Even if interest rates rise for a prolonged period, the scale of disruption caused by AI innovators cannot be ignored. ChatGPT, Bing, Bard, and text-based AI chatbots may be in the limelight right now. However, artistic AI software is also noteworthy, especially from Adobe investors.
For decades, Adobe has had a sizable moat surrounding its financial interests in the creative software space. This moat could dry up as next-generation AI technologies bring new tools to aid digital creatives without requiring training in complex platforms like Adobe Photoshop and Illustrator.
In fact, it’s pretty crazy to think that today’s nascent creative AI platforms will replace things like Photoshop. But Adobe needs to take the AI threat seriously and continue to build a competitive moat in the new era.
AI isn’t the only way Adobe can help you “get creative” with the latest and greatest software updates and products. Up-and-coming companies like Figma and Canva are putting the spotlight on designers and creatives. With Figma blocked, Adobe may not be able to rely on M&A to maintain a lasting competitive advantage. In short, organic growth is key as regulators try to prevent giants like Adobe from getting back on track.
You might question how a $157 billion behemoth, Adobe, can continue to innovate and drive growth as competition and AI transform the industry. Despite my concerns, I think Adobe is up to the challenge even without Figma and other big purchases. After all, Adobe has the resources and talent to organically create the next big creative innovation.
CEO Shantanu Narayen is an excellent manager. Under his leadership, Adobe achieved early results from its move to the cloud. Adobe has also moved laterally into its marketing software. This has helped broaden the company’s growth horizons. Of course, over the years, Adobe has taken advantage of M&A to grow its presence in marketing software. Especially in the early days of its expansion.
The market is like, “What have you done for me lately?” I don’t think it would be wise to underestimate Narayan’s ability to weather headwinds.
Adobe doesn’t need Figma to thrive
The blocked Figma deal may be a small setback, but Adobe has plenty of room to move forward. Adobe doesn’t need expensive acquisitions to stay on the cutting edge of user experience (UX) design innovation. The company is slowly rolling out new features (think automation and collaboration) to make their existing software smarter.
Back on September 15th, when Adobe announced its intention to acquire Figma, the stock price dropped significantly, probably due to the massive $20 billion price tag. Admittedly, there was quite a bit of sticker shock at first. The stock fell again (before finally recovering a few days later) as the deal could fall out of consideration. This is very baffling given how many people seemed to dislike the deal at the time it was announced.
It looks like Adobe stock can’t win either way. I think this is just proof of how unloved the software giants are at a time when a recession is looming and interest rates continue to rise.
I think the Adobe stock overreaction was a misstep on Mr Market’s part, both in the initial deal announcement and news of a potential block.
Despite Adobe’s pursuit of Figma suggesting it needs to “buy growth,” the company remains at the forefront of innovation. Looking ahead, I expect Adobe to unleash the power of AI. The company is well equipped to leverage AI to fend off his AI rivals.
Is Adobe Stock a Buy, According to Analysts?
Turning to Wall Street, ADBE stock enters as a moderate buy. Of the 22 analyst ratings, there are 8 buy and 14 hold recommendations.
Adobe’s average price target is $379.74, suggesting an upside potential of 10.4%. Analyst price targets range from a minimum of $325.00 to a maximum of $440.00 per share.
Takeaway: Adobe Stock is the epitome of growth at an affordable price
Generative AI such as ChatGPT, Dall-E, and Vall-E from OpenAI software is all the rage. Adobe is fully aware of AI’s disruptive potential, making it an interesting “stealth” AI play in the software space.
At 32x earnings (21.8x in the future), Adobe stock hasn’t been this cheap for quite some time.
Disclosure
