Adobe's valuation (below 10x forward PE, 8.5% FCF yield) reflects fully priced-in AI concerns; potential for upside if it beats earnings.

And then we have Adobe, which like many software companies, it's been beat down for the past year, but it's reporting earnings this Thursday. Could it have a big bump like Salesforce?

Now, the last stock here is Adobe, which is in the center of the AI disruption debate. Adobe's now down to $256, down another 3%. When we look at this one year-to-date, it's down 23%.

In the past 5 years, Adobe's down a staggering 61%.

Adobe's narrative is that competition is catching up. Adobe's going to be disrupted. AI image creation and video creation tools and editing tools are getting better every single day.

Adobe's pricing power is falling. The narrative continues to build every single quarter. Meanwhile, the fundamentals continue to go in the right direction. Even as recent as the last quarter, it grew by 12 and 1/2%.

Fast growth. We look at the revenue by segment. They're continuing to grow in each segment of business. The forecasted estimates are slowing down a little bit. We have 13% earnings per share growth, but only 9% year-over-year revenue growth.

So, investors are worried that it's starting to show in the numbers.

Adobe's pricing power is falling. While these are valid concerns, the thing to remember here is that Adobe has these concerns likely fully priced in at this point. It trades at a below 10 forward PE ratio.

So, this company is basically being treated like a car company, like Ford or something. Like a it's getting close to the airline category. And it's a high margin, faster growing software company.

The free cash flow yield is now above a 10%. They do have some stock-based comp, but it only makes up around 19% of the total free cash flow. So, even factoring in dilution, we're looking at an 8 and 1/2% free cash flow yield.

Adobe's reporting earnings after market close on Thursday. And if we look at the historical performance of Adobe in its earnings, it is remarkable. This company never misses. We can look at the estimates there, and every single time they come in above the estimates.

In fact, out of the past like 14 quarters, they've literally never missed on their earnings per share. So, if I have to take a guess, they're not going to miss. They're going to do the exact same thing they always do and beat by 2 to 3%.

This is another company that's so beaten down. The sentiment's so low on this stock that any glimmer of hope, any magic that's introduced into the stock, any type of positive guidance, it could cause renewed enthusiasm.

And we could see the stock jump big in a single day.