3 Reasons to Buy Adobe Stock Like There's No Tomorrow

Adobe (NASDAQ: ADBE) shareholders might wish they could use Photoshop, the tech giant's flagship image-editing tool, to magically erase the stock's disappointing performance in 2024. Despite solid growth and record profitability, shares are down about 30% in the past year. This seems related to uncertainty in the market about how the digital media giant is managing the emergence of artificial intelligence (AI), as both a competitive threat and a significant opportunity.

Nevertheless, Adobe remains on a firm footing into 2025, supported by overall strong fundamentals and several factors positioning the stock to rebound. With shares trading near a 52-week low, let's look at three reasons that Adobe shares look like a great buy.

Start Your Mornings Smarter! Wake up with Breakfast news in your inbox every market day. Sign Up For Free »

1. Adobe's AI leadership

For over 30 years, Adobe has built a global leadership position in software categories spanning creative media, marketing tools, and document management. Its extensive portfolio of products like Photoshop, Premiere Pro, Illustrator, and Adobe Acrobat are recognized as industry standards, serving everyone from global enterprises down to amateur creators.

A large part of the company's success has been its ability to constantly innovate, with that legacy a core part of its current AI strategy. Adobe has integrated AI and machine learning features across its app ecosystem, a major upgrade in functionality that improves productivity and enhances the user experience. Multiple generative AI models in Adobe Firefly are seen as game changers in the creative process.

While specialized AI companies like privately held Canva and OpenAI have introduced text-to-image and video generation features, Adobe maintains a significant advantage, with its more comprehensive offerings integrated with a professional-level application suite.

Ultimately, Adobe's AI initiatives should further cement its market positioning and open up new growth opportunities. If you're confident in the company's ability to navigate its strategy for the changing technology landscape, you have a great reason to buy and hold the stock for the long run.

Image source: Getty Images.

2. Adobe's strong growth outlook

Adobe's recent trends have been impressive. In its fiscal 2024's fourth quarter (which ended Nov. 29), sales climbed by 11% year over year, alongside a 13% increase in adjusted earnings per share (EPS). Management highlighted significant demand from its AI offerings in segments like Digital Media, Creative Cloud, and Document Cloud.

The metric that stood out was Adobe's remaining performance obligations (RPO) exiting the year at $19.96 billion, up 16% from the prior year. RPO represents the total value of subscriptions or services yet to be delivered to customers, which offers good insight into the company's growth runway.

For 2025, Adobe is targeting revenue growth of 8.3% to 9.5%, with a forecast for adjusted EPS of between $20.20 and $20.50 -- representing a 10.5% increase at the midpoint compared to the previous year. While these guidance figures fall slightly short of initial Wall Street estimates, triggering the recent stock-price volatility, the bigger takeaway is that operating and financial momentum are positive.

Here's the bullish case for the stock in the year ahead. Adobe has plenty of room to outperform its expectations over the next few quarters, which would be a catalyst for the stock to rally higher.

Data source: Adobe. YOY = year over year.

3. Adobe's bargain valuation

Perhaps the most compelling reason to buy Adobe stock right now is its attractive valuation. Shares are currently trading at under 22 times forward earnings (based on consensus 2025 estimates), a forward price-to-earnings (P/E) ratio that's deeply discounted from its historical five-year average of about 46.

One interpretation is that the stock is undervalued, considering its outlook for double-digit earnings growth and exposure to high-level themes within AI. Even within the broader tech sector, Adobe stands out as a value stock next to other software names such as Microsoft or Salesforce, each currently trading with a forward P/E of around 31.

ADBE PE Ratio (Forward) data by YCharts.

Final thoughts

I'm bullish on Adobe, and believe all the pieces are in place for the company to reward shareholders into 2025 and beyond. The recent sell-off looks like a golden opportunity to buy into Adobe's story of innovation, growth, and market leadership.

Don’t miss this second chance at a potentially lucrative opportunity

Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this.

On rare occasions, our expert team of analysts issues a “Double Down” stock recommendation for companies that they think are about to pop. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:

• Nvidia: if you invested $1,000 when we doubled down in 2009, you’d have $336,677!*
• Apple: if you invested $1,000 when we doubled down in 2008, you’d have $43,109!*
• Netflix: if you invested $1,000 when we doubled down in 2004, you’d have $546,804!*

Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.

Learn more »

*Stock Advisor returns as of February 3, 2025

Dan Victor has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Adobe, Microsoft, and Salesforce. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.