Adobe ADBE Stock - Time To Power Up Excel!!!

Value Investing with Sven Carlin, Ph.D.•Jun 18, 2026

Summary

Sven, a value investor, provides a detailed analysis of Adobe (ADBE), concluding that it is a risky investment at its current valuation. He highlights several critical concerns, starting with the company's decelerating growth, noting revenue growth at 11% and non-GAAP earnings per share (EPS) growth at 8%. Sven criticizes Adobe's reliance on non-GAAP earnings, particularly regarding stock-based compensation, which he views as misleading and a true expense. He points out that key management figures, including the CEO and CFO, have left, adding to the uncertainty.

Sven emphasizes the highly competitive environment Adobe operates in, suggesting that its slower growth indicates a loss of market share despite being in an otherwise strong market for digital content and marketing. He refers to Michael Burry's observation that Adobe's shift from user growth to annualized recurring revenue signals pricing pressures.

He performs an intrinsic value calculation for Adobe:

In a **normal case scenario**, using GAAP EPS of 17, 8% growth for the first five years, then 6% for the next five, and a 10% discount rate with a P/E of 15, Adobe appears "fairly priced for a 9-10% return."

For a **best-case scenario** with 13-12% growth rates and a terminal multiple of 20, Sven suggests the stock would need to double just to yield a 10% return, implying a much higher true return if these aggressive growth rates are met (e.g., 17% per year over 10 years).

However, in his **worst-case (margin of safety) scenario**, with initial 10% growth quickly slowing to zero and then declining by 10% per year (or 4% growth followed by 4% decline), and a P/E of 10, investors could lose 65-75% of their investment, with the stock price possibly falling to $120, a 40% decline from current levels, especially considering a potential recession impact.

Sven also critically examines Adobe's stock-based compensation, noting it amounts to around $2 billion annually. He calculates the true cost to keep shares outstanding equal to be about $2.5 billion, representing a 3% annual dilution rate. He argues that this compensation effectively canceled out previous share buybacks when the stock price was higher, contributing to shares outstanding only decreasing by 12% over five years, with most of that decline occurring after the stock price collapsed.

While acknowledging Michael Burry's "full position" in Adobe based on its price-to-sales being at decade lows, Sven states he is "not smart enough to see it" and considers Adobe "too much of a bet." He places Adobe in the "bet" quadrant of his investment framework and advises against it, suggesting that Microsoft presents a better valuation opportunity for diversification.

Mentioned Stocks

MSFT

Sentiment: BUYAction: RECOMMENDED

Reasoning: Sven mentions Microsoft as a superior investment compared to Adobe from a valuation perspective. He suggests that in a diversification strategy, it might be better for investors to add Microsoft to their portfolio rather than Adobe.

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ADBE

Sentiment: SELL

Reasoning: Sven expresses significant concerns about Adobe, including decelerating revenue and non-GAAP EPS growth (11% and 8% respectively), which he finds misleading due to stock-based compensation issues. He notes management departures (CEO, CFO) and believes the company is losing market share in a competitive environment, indicating pricing pressures. His intrinsic value analysis shows that in a normal case, it's fairly priced for a 9-10% return. However, in a worst-case scenario, he predicts a potential 65-75% loss, with the stock price possibly falling to $120 (a 40% decline from current levels). Sven also highlights the 3% annual dilution from stock-based compensation, which effectively nullified past buybacks. He labels Adobe as "too much of a bet" for his portfolio.

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