Adobe is a buy with >20% upside to $351; high switching costs outweigh AI competition and CEO uncertainty.

The next stock I'll highlight is Adobe, a business that was beaten down as a result of the SAS apocalypse earlier this year, but shares are recovering. Still, I calculated an upside of over 20% for Adobe stock as I calculated a fair value at $351 and a market price of $292.

One of the reasons why I'm optimistic about Adobe is because of the high switching cost. Even if enterprises find an attractive substitute utilizing artificial intelligence that might cost the company less after they switch, the cost of switching is so elevated to switch their entire business process away from Adobe and into a new system is costly for organizations that have been using Adobe for years or even decades.

And of course, the bearish factor, the one that just jumps at you, is AI competition. Risks of competition from substitutes becoming attractive enough where it makes sense for enterprises to eat that upfront switching cost and make that change because it's improved so significantly.

That's the biggest headwind here. That's the biggest bearish factor in my view.

And secondly, the CEO search is taking longer than expected. It's been several months now where the current CEO announced that he will be stepping back and they're searching for a new CEO and there still hasn't been any announcement of that next CEO.

In my view, the company needs to announce one relatively soon. Otherwise, investors will grow increasingly concerned at such a pivotal moment in the company's history to not have a permanent leader in place is something that needs to be addressed very very quickly.

Despite these headwinds, I think this is an excellent buying opportunity. I own Adobe stock in my portfolio and I'm interested in adding more as well.