Investment Idea #22 - Adobe

Hidden AI Play

Adobe is a huge company at c.USD250bn market cap and one of the most expensive stocks, if not the most expensive one we are discussing on substack so far. While it could be one of the best plays in the new A.I. economy, it is not recognized as such. Let’s through the financials and ratios.

Simple financials (Dec 2025 estimate, USD)

• Sales: 23.5bn and EBITDA: c.11bn

• OP: c.10bn, Net Income: c.9bn

• FCF: 9bn

• Market Cap: 250bn

• Net cash (c.4bn)

Financial Ratios

• PBR: 17x and ROE: 35%

• EV/EBITDA: 24x

• PER: 29x

• Revenue growth (5Y): 15%

• FCF yield: 3.3%, Dividend Yield: 0%

Many substackers and youtubers have written and spoken about Adobe and I think it’s not necessary to reinvent the wheel. I have added links to good materials out there. The following substack posts on Adobe would be a good start:

This first deep dive post covers most aspects which is much better than how yours truly can.

Company deep-dive no 5: Adobe

The next post talks about how AI is transforming the world and how Adobe is leveraging on this megatrend.

The 5 Ways AI Will Transform Creativity with Adobe CSO & EVP Scott Belsky

The last most is more technical from Morningstar, it covers the recent quarter earnings, financial strength and bull / bear points:

https://www.morningstar.com/stocks/after-earnings-is-adobe-stock-buy-sell-or-fairly-valued-3

1. Fundmentals

Next, we would provide a summary of the thesis and three short positives and go straight into technicals and valuations given the amount of materials available online. The investment thesis is as follows:

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Adobe (ADBE US) is one the largest creative software companies providing essential solutions to businesses, prosumers and individuals in the creative sector. It has no clear competitor in scale and enjoys near monopolistic advantage in the world of creative software. Its iconic products such as Photoshop, Illustrator and Acrobat are indispensable to creators and its subscription business rakes in recurring revenue (c.90% of total revenue) which translates to high OPM (c.45%) and strong free cashflow (FCF) generation over time.

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Seeking alpha also provides a good summary of Adobe’s businesses below:

https://seekingalpha.com/article/4529078-adobe-the-essential-investment-thesis

Courtesy of Seeking Alpha and Best Anchor Stocks

As you can see, much has been analyzed about Adobe, so there isn’t much new insights we can add here. I will simply reiterate the following few important positives.