Adobe Is One of the Few Tech Stocks That Haven't Sold Off in 2025. But It Has a Lot to Prove on March 12.

Core Viewpoint - Adobe has shown resilience in a challenging tech sector, but its growth prospects for fiscal 2025 appear weak, raising questions about its AI strategy and overall performance [1][6][10]. Group 1: Performance Overview - Adobe has outperformed other major tech stocks in 2025, despite a significant sell-off in 2024 where it lost over 25% of its value [2][3]. - The company has been growing annual sales in the low double digits and earnings in the low to mid double digits, with fiscal 2025 projections indicating the lowest annual revenue increase and nearly the lowest earnings growth in a decade [7][8]. Group 2: Financial Guidance - The midpoints of fiscal 2025 guidance are $23.43 billion in revenue and$20.35 in adjusted earnings per share (EPS), implying 8.9% year-over-year revenue growth and 10.5% adjusted EPS growth [5][8]. - The revenue growth forecast is significantly lower than historical rates, raising concerns about the effectiveness of Adobe's AI initiatives [6][10]. Group 3: AI Strategy and Market Position - Adobe has developed new AI tools but lacks a clear monetization roadmap compared to competitors like Salesforce, leading to uncertainty about the impact on its bottom line [3][4]. - The company is focusing on attracting new users and measuring engagement with its AI tools rather than increasing prices, which may not satisfy investors looking for immediate returns [9][10]. Group 4: Valuation and Investment Consideration - Despite recent underperformance, Adobe's stock valuation appears reasonable, with a forward price-to-earnings ratio of 21.9 based on adjusted fiscal 2025 EPS [11]. - The company remains a high-margin business generating substantial free cash flow, and its stock buybacks have reduced the share count by 9.7% over the last five years, making it a potential long-term buy for patient investors [10][11][12].