r/valueinvesting
ADBE, PYPL, and portfolio construction
Author argues ADBE is a value stock but warns of AI risks, emphasizing diversified portfolios over concentrated single-stock bets.
- ADBE is fundamentally a value stock with attractive multiples and steady growth.
- AI disruption could render current SaaS valuations obsolete, creating value traps.
Is ABDE a value stock? What about PYPL?
I see these posts everyday and everyone has their own opinion. I made a post about MU being value when it was trading around $100 and it was generally scoffed at.
Who is right?
I think the biggest problem people have is that they look at individual names and try to determine exactly the right answer for that equity in a vacuum.
Which ends up with people giving strong opinions in either direction.
People need to think more about the thematic reasons why they do or they don't think each are value stocks.
For example. I think fundamentally ABDE is a value stock. I don't think there is an argument it is not. They are growing rev around 10% y/y and are trading around a 10x pe and around a 10x fcf. That is the definition of value.
Now the people who say it is NOT a value stock will say that AI will get better and people and corporations will use LLMs to replace ADBE and their forecasts are wrong and rev will erode enough over time that $200 right now is mispriced. Fine. I'm not here to say that is correct or not. If it is correct, then ADBE will likely trade down and will become a value trap. There are risks in every trade. People should hedge that risk, and not conflate value stock with growth, or speculation, or forecasting out impacts of Ai.
IF the Ai thesis is correct, that also means that other SaaS companies will get decimated and potentially other Ai and Ai adjacent companies will gain tremendous value.
This brings me back to portfolio construction thoughts and simply not putting your foot in the ground on specific names.
A. This isnt a yolo sub so being "wrong" shouldn't matter too much because individual names shouldn't make up a large % of your portfolio.
B. This is a value stock sub and not growth or speculation focused, which is unfortunately the tone of a lot of posts.
C. If you are "wrong" on ABDE and Ai takes over, make sure to have a portfolio that can grow in different scenarios. Be long Ai somehow in growth names (NVDA, AMD, CRWV, BE, ect) or value names (HAL, GOOG, META, ect)
Hope some of these thoughts are helpful.
I made a post about ADBE yesterday and it pissed everyone off lol.
I bought a few of both adbe and pypl.
Not meaningful money, just an exercise to see if my judgment is any good.
I AM FULL IN ADBE
PYPL is going to be killed by Apple Pay, even though Apple Pay has been around since 2014 and PYPL has grown topline every quarter in its existence.
I dont know why PYPL is thrown in here, this is fully about ADBE
ADBE makes a silly amount of money...no denying it. But nobody cares about that right now with ADBE, INTU, PYPL, etc. They all have massive free cash flow. Investors are looking at the future and fearing eroding moats and margins with every new AI model release and tokenization blah blah blah headline. And this narrative reloads over and over again every fews weeks. Do not expect a re-rating on these anytime in the near future. This threatening cloud is going to persist for years. They need to start returning that massive cash to investors in the form of high dividends instead of buybacks ASAP. All of them. Terminal value is in question on all of them.
U talking to me? I am offended lol
Yes just like google was going to be killed off by ChatGPT, amazing calls from the redditor analysts here!
Personally, I think ADBE is one of the more interesting opportunities in the market right now. What I find interesting is that many investors seem to view AI purely as a threat to Adobe. I am not convinced that is the full story. AI can generate content, but businesses and professionals still need powerful tools to manage workflows, edit, refine, organize, and turn those outputs into finished products. That is where Adobe already has a strong position.
Maybe I am wrong, but I think the market is focusing heavily on the disruption risk while giving less credit to the possibility that Adobe becomes one of the platforms that benefits from AI adoption.
As for PYPL, I also think it is an interesting value case, but that is probably a separate discussion.
I work in the design and print industry and I can tell you AI is not really being adopted and you have to fix everything with Adobe. Print engines, secure PDFs … it’s more than just Premier Pro, illustrator and Photoshop
large position sizes are things for peoples' first market cycle imho. experience shows that nothing happens "on time" the way reversion to the mean etc suggests it should in a "rational market"
so, re:
A. Right. Your position sizing strategy should expect a few to go to 0, and for that to not matter long-term.
B. <insert narrative here>
C. if software didn't destroy accounting firms, LLMs aren't going to destroy software firms lol
I read an interesting comment about ADBE on Reddit today (can’t remember the sub or post), comparing Adobe to BlackBerry in 2009.
The user pointed out that Adobe’s forward P/E looks great right now, but so did BB’s right before they continued growing until 2011 and then sharply declined.
The argument is that AI media generation is becoming hyper-competitive. Between the explosion of standalone apps and deep AI integration at the OS level, the barrier to entry is vanishing. As token costs plummet, we'll practically be able to generate what Adobe does today in seconds, completely for free.
Given that, what exactly is the bull case?
I think Adobe is different from BlackBerry. A lot of Adobe’s value comes from the entire creative ecosystem, not just content creation itself.
Adobe offers commercially licensed content and enterprise AI tools with legal protections that large companies care about. Their core customers are businesses with teams, brand standards, compliance requirements, and workflows built around Adobe products, not people making a quick YouTube thumbnail.
The bear case is that AI makes content creation a commodity. The bull case is that Adobe remains the trusted platform companies use to create, manage, and edit that content as AI becomes more powerful.
There’s a pretty big difference. BlackBerry could be completely replaced — 100% dropped. Adobe, as of right now, cannot be by the majority of its customers.
Adobe’s margins may be cut and COGS increase as it integrates AI, but there are decades of historical brands and content contained in proprietary formats within businesses. It’s really unlikely to be replaced 100% in the next three year cycle. It would be a much longer switching cycle.