ADBE

Adobe remains an exceptional business hiding behind a value-stock multiple. FY2025 revenue grew 10.5% to $23.8B with net income up 28.2% to $7.13B and diluted EPS up 35.1% to $16.70 — the EPS outpacing net income because management retired 5.7% of shares via $11.3B of buybacks. Margins are elite and still expanding: 89.3% gross, 36.6% operating (operating income +29.1%), 30.0% net, with a 61.3% return on equity. Operating cash flow of $10.0B against just $179M of capex implies roughly $9.8B of free cash flow — over 12% of the $80.1B market cap — so the buyback is fully self-funded, not financial engineering. At 11.7x trailing EPS and 3.4x sales, the stock is priced for stagnation that the financials do not show.

The market's discount is a referendum on the 10-K's central risk: that generative and agentic AI erodes the Creative Cloud moat. Management is explicit that 'AI... enables users of all skill levels to create and edit content,' that it faces 'increasing competition from companies offering generative and agentic AI solutions,' and that 'there can be no assurance that our... AI innovations will be successful, adopted or monetizable.' The MD&A counters that fiscal 2025 saw 'strong demand across Digital Media and Digital Experience... driven by AI-powered and highly differentiated solutions' and continued subscription growth — and the revenue trajectory ($15.8B→$17.6B→$19.4B→$21.5B→$23.8B) shows no deceleration yet. The integrated software-plus-cloud 'single performance obligation' that anchors ratable subscription revenue is also a switching-cost moat that pure AI entrants must overcome.