Adobe是一个看涨案例；公司正成功整合并变现AI（如Firefly），以推动经常性收入并维持盈利能力，这与生成式AI将摧毁其业务的担忧相反。

Yes. Well, I feel like this is one that there there's going to be a lot of agreement and disagreement in the comments about Adobe. You know, this is one of those companies that was hit by the SaaS apocalypse earlier this year.

You know, there's been this, I think, concern that because of the rise of generative AI tools, AI agents, the prevalence of that technology, but also how incredibly accurate and more useful it's getting, that you're going to have a essentially almost all software companies just go completely defunct. I think that there are absolutely software companies that exist right now that will not be here 3 to 5 years from now. That is certain. However, you have to look at a company by company, you know, basis. You have to look at each platform individually. I personally think Adobe is an example of a company that has been really underestimated by the stock market, particularly as we look at how the business is actually doing, right?

You know, you have to separate that from the stock. So, they just had an a record quarter. They pulled in $6.6 billion in revenue. That was up about 13% year-over-year. 28.6% profit margin. Now, their trailing PE ratio right now is just right around 16. You compare that to their 10-year historical average, which was in the 40s. I mean, this is essentially a company that has lost about 2/3 of its valuation premium based on fears that AI is essentially going to completely ruin the business.

Now, I want to talk about the bear case, and then I'm going to talk about kind of my more bullish thesis here. So, the bear case essentially assumes that, you know, free or cheap AI tools are going to just demolish their business. That if anyone can type a prompt into a web browser, you get a clean graphic, a video in 5 seconds, who's going to pay hundreds or thousands of dollars a year for an enterprise Adobe subscription.

Now, I think that this actually kind of misinterprets how real professional design works. Uh you know, when you have a big marketing team or design agency, they need the exact pixel control, layer-by-layer editing tools, secure collaboration, and that's exactly where AI is helping Adobe monetize its business uh in a in a age where they are having to pivot their tools to stay more relevant.

So, Adobe built its own AI engine called Firefly, and they built that directly into the core code of Photoshop and Illustrator. And so, instead of, you know, users leaving Adobe to experiment with other AI tools, they can generate backgrounds and fill images instantly right inside their existing uh workspace.

And Adobe's AI-driven apps are seeing recurring revenue triple year-over-year. Their business and consumer segment grew 16% in the most recent quarter to just under 2 billion. That was because of their new AI features in Acrobat, Adobe Express.

They have over $22 billion in contract backlog that's locking in future revenue. That lends a lot of stability to their subscription business. Um they have an operating margin of over 40%.

You know, in Firefly, this this has been their core tool that they've optimized for AI. This is specifically built for that localized asset creation. So, their cost to generate an AI image is really a fraction of what a lot of the standalone AI companies are spending, which I think is also really important to note.

Um instead of, you know, replacing a lot of their tools, AI has been used by Adobe to be integrated directly into its ecosystem. And those AI-first features are what is sending consumption and therefore recurring revenue for the business soaring.

And so, I would say, you know, the critics would say that the software-as-a-service is dying. For some companies, that may be, but I think Adobe, they're, you know, continuing to deliver double-digit organic revenue growth. They have outstanding margins.

You know, one other thing, management launched a $25 billion share repurchase program running through 2030, kind of signaling their confidence uh in the stock.

So, I think this is an interesting business. I think that we have to look at what has been happening with software stocks and software businesses and understand that while there are certainly elements that can be replaced and while there are certainly companies that are saying they're rolling out AI tools to try to mask a failing business, that is not the case across the board. I personally think Adobe is an example of one of those companies that's actually doing a really good job of monetizing AI and driving their business forward.

So, it's an interesting one to chat about. I am sure there will be plenty of people in the comments disagreeing with me, but I thought it'd be a fun one to bring to today's conversation.

I spoke with some some folks at Adobe and there are two sides of the business. There is the creative side of the business, which the majority of us know, Photoshop, Premiere Pro, Illustrator, but there is the other side of it, the marketing side, the the commercial side of things that we as individuals might have never touched it. And the enterprise is is part of the business where they're making a lot a lot of money. It's the whole Adobe ecosystem that I just don't see an AI chatbot replace anytime soon.

A CFO leaving, a CEO stepping down, especially right now, doesn't help when the stock is already under pressure. Now, they are still growing, they're still extremely profitable, they're buying back a ton of shares. Stock is actually up close to 50% from the bottom a couple of months ago and only down around I think 12% or so year-to-date. So, they're doing better than than feared, I would say.

But with Adobe, they are in a position where they they cannot they cannot permit themselves not to execute because they are in a very good position. Because yeah, if they do not execute correctly, I can see parts of their business being disrupted. And once you lose part of your business or part of your, let's say, competitive advantage, it can hurt the future of such a profitable company.

I agree, and I think those are the really important risks to keep in mind. You know, I personally am bullish on the business, but I also am very aware of the risks that, you know, I highlighted, that you highlighted, Neil. And I think it's also important, you know, I'm not saying to go out and uh you know, go all in on Adobe stock by any means, but I do think that it is an example of one of those businesses that has been hit very hard by the SAS apocalypse.

You know, that the stock has rebounded a bit in recent months. Um but you look at the core business and there is really a disconnect from some of what we've seen with the stock's movements.

You know, this is a profitable, high-cash-flow business. The growth they're seeing from their AI tools means that all of these enterprises, you know, the bulk of their revenue profits is derived from the large companies that they're working with, right? Not individual users or creators.

Those enterprises are continuing to see value in those tools, and they're using up even more consumption credits, which means they upgrade to higher tiers, which means their recurring revenue grows even faster.

So, an interesting company to at least maybe put on your watch list if you are watching the movements in the world of software stocks, and you're curious to see how a stock like this performs moving forward.