A Bull Case for Adobe Stock Remains Today

Key Points

• Adobe stock is now presenting investors an undeniable value opportunity backed by both fundamental and technical factors for an asymmetric outcome today.
• Institutional buyers have started to take action on this opportunity, counting down the days before it plays out.
• Wall Street analysts still see double-digit upside potential despite recent volatility.

Every investor is now aware of the current sentiment around the technology sector. A never-ending wave of volatility and negativity has taken hold of the best and dearest names in the space due to President Trump's recent rollout of trade tariffs against some of the biggest trading partners in the United States economy, particularly China and other Asian powerhouses.

However, not all of these technology stocks should be excluded from the equation and treated (or considered) with the same scope of potential tailwinds and negativity since some of them are inherently immune to the effects of these trade tariffs and the uncertainties they cause in the global economy, or more importantly, in future earnings per share (EPS) potential for these companies.

One of these names is Adobe Inc. NASDAQ: ADBE. This software company sources most of its operations within the United States. As investors will find out in just a bit, this name is far removed from the perils of economic uncertainty for many reasons.

Still, the main pillar of strength in turning it into a potential buy can be seen deep within the business model and its fundamental themes over recent quarters.

The Safety of Adobe’s Business Model

First and foremost, Adobe is a services company. It doesn’t import or export any chips or semiconductor equipment that may be subject to these newly placed tariffs, so there is nothing to worry about regarding uncertainty and potential ceilings in earning power.

Secondly, Adobe derives most of its revenue from subscriptions, which makes its underlying financial structure much more stable and predictable compared to other names in the space who rely on sales and units delivered in other countries, most of which are, in fact, subject to these trade tariffs.

With this in mind, investors can see how Adobe is relatively immune to the bearish thesis surrounding technology stocks. Still, the strength of a potential buy doesn’t stop with the business model.

An Undeniable Value Opportunity

Now that Adobe shares have fallen to a low of 63% of their 52-week highs, some may argue that the worst-case scenario has already been priced in, despite this outlook having nothing to do with the company, as already discussed. This logically leaves investors with nothing but the upside potential left from this discount.

But what is driving the price higher behind the scenes? Looking into the latest quarterly earnings report, savvy investors should notice a few things. First and foremost is the record revenue of $5.7 billion for the first quarter of 2025, a growth rate of 10% over the past 12 months.

As investors know, most of this revenue comes from subscriptions, allowing management to allocate this retained capital effectively for further growth and compounding cash in the company. This theme can be quantified by looking at the same period's free cash flow (operating cash flow minus capital expenditures).

Last year, Adobe generated $1.1 billion in free cash flow, compared to the latest reported $2.4 billion in free cash flow for the past quarter, more than double. This increase directly affects the returns on capital that investors can expect and the growth rate in earnings per share (EPS).

In terms of EPS, Adobe managed to deliver a fourfold increase over the year, while the stock fell by a net 20% during the same period. It doesn’t take too much effort or conviction to know that divergences of this size between stock price performance and underlying earnings growth present massive opportunities.

And this opportunity, in particular, is already being scooped up by some bold and willing buyers.

Smart Money Likes Adobe Stock

As of late April 2025, those from the Bank of New York Mellon decided to boost their stakes in Adobe stock by as much as 14.4%, bringing their net position to a high of $2.5 billion today. When building their views, retail investors can take this as a sign of confidence in what the stock can do in the coming months and quarters.

However, the theme doesn’t stop there; Wall Street analysts have kept a consensus price target of up to $502.9 per share on Adobe stock despite the double-digit percentage decline over the year. This call would imply that the company can rally by as much as 35% from where it trades today. This is unusual behavior for risk-averse analysts who rarely return a declining name like this.

All told, there are now asymmetric setups in Adobe stock for those looking to buy, with as much fundamental evidence to back up such a decision in the future. A double-digit upside awaits this tariff-immune name today; the question is how long the opportunity will last.