AI threatens Adobe's terminal value multiple
The bear case argued for Adobe is that generative AI and LLMs threaten its top-of-funnel user acquisition, potentially compressing its terminal value multiple despite sticky enterprise cash flows.
The argument
The speakers debated whether Adobe's 96% subscription revenue and dominant position in precision editing can protect it from AI content generation tools. One speaker suggested that without a clear top-of-funnel growth path for new users, the stock's terminal value is much harder to underwrite at historically high multiples.
The thesis, stress-tested
✓ What validates it
- ✓Slowing Creative Cloud subscriber growth in upcoming quarters
- ✓Multiple compression in future valuation models
▸ Risks discussed
- ▸AI content generation tools bypass the need for Adobe's suite
- ▸Top-of-funnel user acquisition slows down
Hear it yourself
"listening to TIP. In today's episode, I'm joined by my friends and fellow value investors Tobias Carlisle and Hari Ramachandra for another round of, dare I say, unloved stock pitches. We kick things off with Hari's pitch of Meta. The business is firing on its cylinders, yet the market has been selling off the stock."
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