Buy Adobe stock for AI exposure, this portfolio manager says

There are plenty of ways to participate in the AI trend, where artificial intelligence is finding more uses in more fields of business. And while there are obvious choices when it comes to tech companies with AI connections, from chip makers like Nvidia to voice-activated platforms like Amazon and Google, one name that might not immediately come to mind is Adobe Systems (Adobe Systems Stock Quote, Charts, News, Analysts, Financials NASDAQ:ADBE), where AI is said to be the future of search and information retrieval.

Portfolio manager Gordon Reid thinks investors will also do well by Adobe since the stock is looking a lot cheaper than it did a year-and-a-half ago.

“It’s a creative technology software technology that has somewhere in the neighbourhood of 90 per cent market share within that space,” said Reid, president and CEO of Goodreid Investment Counsel, who on Thursday nominated Adobe Systems as one of his Top Picks for the 12 months ahead.

“The stock was a lot more expensive back at the end of 2021,” he said. “We always admired the company but it was always very expensive — it traded at around $700 a share when they made (in 2021) about $6 a share, so it was very expensive.”

Now down around $370, Adobe has rallied in recent months, coming off the mat at around $285 as recently as this past November. The stock dropped down a level in September of this past year when it announced the acquisition of cloud-based design software company Figma for $20 billion, that after the company was valued at $10 billion as of its last funding round in 2021.

Reid said the resulting drop in Adobe’s share price just means investors are getting the combined Adobe-Figma entity for a lot less.

“The stock has been pretty much been cut in half, and a lot of that came as the result of the purchase of Figma, which is a web based collaborative, creative software. The market though they paid too much and shaved about $30 billion off the market cap,” Reid said. 

“We thought, well that’s great. We’re getting Figma for free. So, we bought it and it’s trading in the high 20s in terms of multiple. They’re going to make $11 a share this year, and we believe by mid-decade they’re going to make somewhere at $18 or $19 a share,” he said.

“They’re very, very closely aligned with AI discussions in terms of search. It’s a huge, bright future for a company like Adobe, and we’re thrilled to get it at the price we did,” Reid said.