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Adobe (NASDAQ:ADBE) has focused on integrating AI into applications over the past year. With enhancements being made, the management team is hopeful it’ll be able to monetise this trend and help make the company more profitable. Given the AI hype has been underway for over a year, let’s look at what an investor would currently have if they had put £2,000 in at the start of 2025.
Looking at performance
It might be surprising that the Adobe share price is down 6.46% year to date. This means that £2,000 would currently be worth £1,871. Some might feel that part of this drop could be due to the Trump tariff announcements in early April. Indeed, this spooked markets around the world. Yet Adobe shares were falling even before this April news. The US stock is now back above the start-of-April levels, showing investors have looked past this potential concern.
One factor weighing on the stock is the challenges in monetising AI investments. While Adobe has integrated its proprietary AI model, Firefly, into products like Photoshop and Illustrator, investors remain sceptical about the company’s ability to effectively monetise these features.
I recently read a report that criticised Adobe’s adopt-first, monetise-later strategy, expressing concerns over the lack of clear communication regarding the monetisation of AI tools.
Another point is that although there are positives surrounding using AI, competition is fierce. The AI-driven creative software market is becoming increasingly competitive. This means that even though Adobe has a good reputation, newer companies are quickly eating into its market share.
Trying to find value
Several of Adobe’s direct competitors aren’t publicly listed, making it hard to compare sector performance. Yet when looking at the broader sector, I can compare it to Oracle and Microsoft. Oracle is up 2% this year, with Microsoft up 11%.
I can also contrast performance with the Nasdaq index. It’s up 1% so far this year. I know that’s not much to shout about, but at least it’s positive instead of the unrealised loss that an investor would have from holding Adobe stock.
When I broaden the time frame, I can note that Adobe shares are down 7% in the last year. Some might think that this represents a potential value purchase. The price-to-earnings ratio is 27.35. Although I wouldn’t call this cheap, it’s not expensive compared to other tech companies.
Aside from the valuation, the stock could do well going forward for other reasons. For example, increased AI tool adoption could provide more revenue than is currently expected. Further, its traditional products are deeply embedded for existing users, meaning it has sticky income from these sources and good retention rates.
Ultimately, the share price movements in Adobe stock so far this year show the investor sentiment towards it. With the future a little cloudy on AI monetisation, I think investors can consider better opportunities elsewhere.
