It’s no secret that, as a stock, Adobe (ADBE) has been a bit of a disappointment over the past twelve months. Labeled an “AI loser” by skeptical market analysts, its moat is supposedly eroding as cheap, AI-powered creative platforms siphon off new subscribers. The stock has dropped 37.5% over the past year and is now approaching the ~$275 lows seen at the back end of 2022.
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While Adobe’s growth story may look a bit more modest today, the company’s fundamentals are arguably just as strong—if not stronger—than they were in early 2024, when the stock traded nearly 50% higher than current levels. Management clearly agrees: anticipating undervaluation, Adobe has been actively buying back stock and leaning into large repurchase programs to capitalize on what it sees as a depressed share price.
The newest development came with the announcement of the Semrush (SEMR) acquisition, aimed at strengthening Adobe’s analytics capabilities and feeding its AI flywheel. Even though the deal is tiny relative to Adobe’s scale, the market reacted coolly. Still, I believe the strategic logic is sound and ultimately enhances Adobe’s moat.
Given how dramatically compressed Adobe’s multiples have become—in my view, exaggerated for a business that continues to generate exceptional cash flow, maintain extraordinary margins, and still grow double digits in both revenue and earnings—the valuation asymmetry remains compelling.
Short- to mid-term pressure may continue as the AI loser narrative drags on, but eventually the fundamentals should speak louder, driving a re-rating. For that reason, I remain Bullish on the long-term thesis.
The Strategic Logic Behind the Semrush Acquisition
When a company is the market leader in its field and growth begins to look suboptimal in the market’s eyes, the natural lever to pull is often M&A—especially when supported by a strong balance sheet and robust cash flows.
After the frustrating (and frankly, amateurish) attempt to acquire Figma (FIG) a couple of years ago—a deal ultimately blocked by regulators—Adobe had gone quiet on the M&A front. That changed with the recent announcement of the Semrush acquisition, a leading top-of-the-funnel marketing SaaS platform that spans multiple digital channels. The deal, priced at $1.9 billion or roughly $12 per share, implies about 4x next year’s revenue.
From Adobe’s standpoint as a full-stack platform for both content creation and distribution, the Semrush deal makes a lot of sense. As the company pushes deeper into performance and analytics, Semrush comes to “fill the gap” between creation (Creative Cloud/Firefly) and visibility. Semrush brings SEO (search engine optimization), demand insights, content audits, and competitive intelligence—capabilities that speak directly to CMOs and marketing teams, while adding another layer to Adobe’s moat through access to rich search and intent data. It also strengthens Adobe’s AI flywheel by feeding Firefly models and automation tools with real user behavior and search-trend data.
There’s also an apparent strategic angle within Experience Cloud, which is currently Adobe’s least relevant revenue segment but carries a higher ARPU and enterprise-level monetization potential. Semrush both expands Adobe’s offering and positions it more directly against players like Google Analytics (GOOGL), HubSpot (HUBS), and Salesforce Marketing Cloud (CRM).
Why the Market Reacted Cautiously to Semrush
One of the points raised by Adobe’s management regarding the Semrush acquisition is brand visibility, aimed at reinforcing consumer trends around LLM usage and the growing need for GEO (geo-based optimization) and SEO capabilities—essentially a move to anchor the company more firmly within the AI narrative. Even so, when the acquisition was announced on November 19, Adobe’s shares fell nearly 4% before recently recovering.
The lukewarm reaction likely stemmed from analysts crunching the numbers and finding the projections somewhat unreasonable given Adobe’s scale. With $5.9 billion in cash and equivalents, just $710 million in net debt, and $8.6 billion in free cash flow generated over the last twelve months, a nearly $2 billion deal is, in theory, quite small for a company of Adobe’s size.
Over the last twelve months, Semrush generated $428 million in revenue and posted $7.2 million in operating losses, while analysts expect EPS to grow at a 17% CAGR and revenue at roughly 14% over the next four years. Given this backdrop, Adobe would only begin incorporating Semrush into its consolidated model starting in Fiscal 2026, with an initially minimal impact—something in the range of 0.5% to 1% incremental revenue.
The more meaningful contribution is expected between 2027 and 2028, once Semrush is fully integrated into Experience Cloud and cross-sell and bundle synergies start to materialize. Even then, based on current projections, the lift would be only around 2% to 4% to Adobe’s top line. This reinforces the idea that the deal is far more strategic than financial in the short to medium term—strengthening the moat and expanding capabilities rather than moving the needle materially on revenue or earnings.
Adobe’s Valuation Has Overshot to the Downside
With that in mind, Adobe now trades at 20.2x earnings and 14.9x free cash flow, levels that break below the trough reached at the end of 2022, when the stock plunged to $275, its lowest point in five years. At that time, the market was in a broad bear phase, growth had slowed to the low teens, and the company was entangled in the failed—and heavily criticized—attempt to acquire Figma at ~50x ARR (annual recurring revenue).
It’s worth highlighting that, over the last three years, Adobe has grown revenue at a 10.5% CAGR and EPS at a 16.5% CAGR. Meanwhile, consensus projects revenue growth of 9–10% over the next three years, with EPS expected to compound at roughly 12%. So while growth has indeed decelerated, the underlying business remains extremely robust. The market, however, seems to be applying the same mental model it used in late 2022: structural slowdown, multiple compressions, and skepticism around new growth drivers.
Given this backdrop, a move back toward $275 per share in the short to medium term would not be surprising before any re-rating that better reflects Adobe’s fundamentals. Still, there appears to be a clear asymmetry in how the market is currently pricing a business with highly recurring revenue streams and consistently strong profitability. In the long run, investors who take advantage of periods of weakness in ADBE, in my view, are likely to end up with a favorable deal.
Is ADBE a Buy, Hold, or Sell?
Consensus on Adobe remains broadly bullish. Over the past three months, 18 of 26 analysts have issued Buy ratings, while seven recommend Hold, and one rates the stock as a Sell. The average price target of $459.91 implies ~43% upside over the next year.
Strategic Strength Over Market Emotion
The Semrush acquisition looks far more strategic than financial, serving primarily to strengthen Adobe’s AI flywheel and reinforce its moat across enterprise and creator workflows. The encouraging part is that it’s a highly affordable deal for Adobe with minimal impact on its financial profile, especially given that capital allocation in recent years has focused mainly on stock buybacks.
While the stock is facing heavy emotional pressure at the moment—pulling it toward five-year lows—I still believe the company, even with a more modest growth outlook, maintains fundamentals strong enough to justify trading above its historical trough multiples. In my view, considering the apparent asymmetry at current prices, ADBE continues to screen as a Buy for shrewd long-term investors.