Will this tech giant reach such high heights?
Adobe is already a legend. As the creator of Photoshop, inventor of the PostScript printing language and pioneer of software-as-a-service (SaaS) licensing, Adobe has left an indelible mark on the history of creative software tools.
Adobe is now one of the 40 most valuable companies in the US market, surpassing well-known brands such as PepsiCo, Toyota Motor and IBM. These companies have been on the market longer than Adobe, generate higher annual revenues and are perhaps better known. Yet Adobe has the largest market value of this group.
Yet Adobe has a market value of "only" $236 billion, still far from the coveted trillion-dollar club. Does Adobe have the potential to reach this exceptional level within the next decade?
Adobe's path to a trillion-dollar future
What would it take for Adobe's market value to reach a trillion dollars? If it were to be by 2035, the stock price would have to roughly quadruple in 10 years. That would represent a compound annual growth rate (CAGR) of 15.5%.
It is an ambitious goal, but not an unattainable one. Adobe stock has posted a CAGR of 22.7% over the past decade and 17.6% over 30 years. The company could reach the trillion-dollar target by 2035 even if its growth slows a bit.
Share growth and business growth
Adobe has a long history of above-average stock returns, suggesting a clear path to $1 trillion in just a decade. What's more, the stock's growth is the result of equally impressive business growth.
Adobe's revenue has grown at a CAGR of 17.4% over the past ten years, while free cash flow has grown at an average rate of 19.7% and adjusted net income has grown at 36.4% per year. Share price growth is somewhere in the middle of this pack, suggesting that the stock's valuation fairly reflects the actual performance of the business.
Adobe's AI-powered vision for future success
Past performance is no guarantee of future success, and this important principle applies to Adobe as well. As it turns out, Adobe is focusing on the artificial intelligence (AI) trend. Specifically, the company is integrating generative AI tools into its entire Creative Cloud suite, which includes media creation platforms like Photoshop, Premiere Pro, InDesign, and Acrobat. Using Firefly's generative AI engine, you can add or remove details in photos or videos based on simple text-based instructions in English. The results aren't always perfect, and a human editor is still needed, but Adobe is a leader in this area and committed to long-term improvements.
With the early deployment of generative AI, Adobe has positioned itself for robust financial growth, at least for the next few years. The AI boom will fizzle out over time, as all trends do, but Adobe should remain in a strong position beyond that period. The company has a long history of successfully adapting to market changes, often leading to new eras.
Adobe, for example, was one of the first software companies to abandon the old-style one-time licences in favour of subscription plans for cloud services, and this new idea has become an industry standard.
Again, there are no guarantees in business, especially in the long run. Nevertheless, Adobe seems to have a good chance of crossing the trillion-dollar mark by 2035. And it may even succeed sooner than expected.
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