William Heard
Good afternoon, everyone. Thank you for having me. I'm William Heard from Heard Capital, and I'm excited to share my best idea.
This is a company most of you know, have heard of, and use multiple times a day. Yet it remains misunderstood. It is a leader in the digital content arena, and we believe it has significant upside.
1. AI Is Reshaping Content Creation
AI has unlocked a new era of content innovation. Hundreds of millions of pieces of AI-generated content are created daily, with use cases spanning advertising, marketing, entertainment, and social media platforms. Creatives and enterprises need advanced tools to transform raw AI material into competitive IP while seamlessly integrating the latest AI capabilities into the creative workflow. As regulatory scrutiny increases, enterprises face mounting pressure to ensure AI-generated content does not infringe on IP.
Finally, scattered workflows drain creative momentum as teams wrestle with compatibility issues and manual fixes. This chaos demands a comprehensive solution—one that innovates, unites, and safeguards creativity at scale.
2. Adobe Is The Investment Idea
Our investment idea is Adobe. We believe the market is discounting an installed base of 45 million-plus subscribers, assuming AI will disrupt rather than further entrench Adobe's competitive position. At the enterprise level, Adobe's TAMs are not fully penetrated, and Adobe has already demonstrated pricing power on a larger installed base. We believe Adobe is well positioned to win the generative AI arms race in the digital content creation arena.
3. Adobe's AI Rollout Is Deliberate
We understand investors have grown impatient with Adobe's pace of modernization. However, we believe prioritizing an understanding of AI workflow adoption patterns is the right sequence for a few reasons. To begin with, critics misunderstand the basics of the creative workflow: large language models excel at ideation but lack the precision of Adobe's software needed to finalize content. Second, the market has misread Adobe's deliberate approach to AI modernization as defensive, rather than as a strategic product rollout that will further consolidate its already strong competitive position.
These actions will not impair value. Third, Adobe's management team has a track record of navigating complex technological shifts, such as the move into the cloud and the switch to a subscription-based model. These decisions were not accidental.
4. Firefly Protects Adobe's Moat
Adobe has 3 segments: Creative Cloud, Document Cloud, and Experience Cloud. Adobe's subscription model ensures revenues are built on strong pillars such as content digitization, mobile-first workflows, and surging video consumption. GenAI is powerful for ideation, but refining content still requires Adobe's precision editing tools. Firefly, Adobe's GenAI model, has pixel-level control and is trained on licensed, ethically sourced data, ensuring outputs are commercially viable and that use cases and usage rights are cleared.
5. Adobe Trades Below Its History
Looking at any measure of profitability—free cash flow, gross margin, or EBITDA margin—Adobe ranks at or near the top of its peer set, yet trades at the lowest forward relative P/E multiple. On the capital allocation front, management has bought back almost 10% of the current market cap, with $14 billion of a $25 billion buyback program remaining. Despite strong fundamentals, at 19 times P/E, Adobe is trading at trough multiples relative to its 10-year average of 33 times, reflecting investors' concern over muted growth. With that said, the rule of 40 for Adobe is 58%, offering a great risk-reward.
6. AI Is Reaccelerating Growth
Driven by AI and Express, Adobe's Creative Cloud is accelerating from 6% growth in 2023 to 24% growth this year, proving Adobe's AI rollout is working. Concerns regarding low-end competitors such as Canva, in my opinion, miss the mark. Adobe's strategic pricing allows it to defend the low-end cohort with competitive offers while pushing pricing at the higher end, where Adobe's tools are unmatched. The creative market is expanding.
This is not a zero-sum game. Adobe's monetization is gaining traction, and engagement is driving margins up across the platform. Adobe recently disclosed over $3.5 billion in AI-influenced ARR, meaning AI is already positively impacting retention, usage, and upgrade cycles. Growth is at an inflection point. First, we believe consensus estimates are too low over the next 3 years.
Second, most of Adobe's AI products have been in the marketplace for less than a full year. Third, at the 2025 Investor Day, they reaffirmed their guidance. Finally, our $700 price target implies substantial upside using 25 times EBITDA, 33–34 times P/E, and 33 times free cash flow multiples, all of which are in line with Adobe's historical range. With meaningful AI ARR, the potential for margin expansion as monetization scales will drive upside to current EPS estimates and provide multiple ways for Adobe to win. Thank you.
Speaker 1
Thank you, William. Thank you. At Sohn, we always try to be on the latest theme. I'm sure you haven't heard of AI before, but we're going to fix that. There's a fireside chat with the CEO of Perplexity and with Sebastian Mallaby, who's actually writing the book on AI.
So, I recommend you pre-order that. I asked Perplexity, “What is the best question for William?” And it was, “William, what can go wrong?”
William Heard
Yeah. I think Adobe has proven it's not if; it's when this is going to occur. We have a saying at Heard Capital: valuation is a continuum. It's not a point in time. If you look back, the CEO has been at the helm of this company for about 17 years. They bought back about 54% of their market cap during that time period.
And he's grown the company from $27 billion to $170 billion. Over time, I think we'll wait for slow, profitable growth in any environment. Adobe is literally embedded in everything you do. So, thank you.