ADBE Analysis: Adobe's 42% Crash Leaves a $10 Billion Free Cash Flow Machine at a Decade-Low P/E
Adobe Inc. (NASDAQ: ADBE) has been one of the most dramatic casualties of the AI disruption trade. The stock has plunged from its 52-week high of $453.26 to a recent $262.41 — a 42% drawdown that has slashed its market capitalisation to $109.8 billion and compressed its trailing P/E ratio to just 15.7x. For a company that generated $9.85 billion in free cash flow last fiscal year, that is a strikingly low valuation. The selloff reflects genuine fears. Google's Gemini image generation upgrades, Canva's AI design tools, and a wave of text-to-image startups threaten to commoditise capabilities that once justified Adobe's premium pricing. The company's failed $20 billion Figma acquisition in 2023 still lingers as a strategic question mark. Institutional holders are reshuffling — Andra AP fonden trimmed its position by 6.4%, though Banco Santander increased its stake by 52.3%. Yet the financial reality tells a different story from the price action. Adobe delivered 10.5% revenue growth in fiscal 2025, expanding margins and accelerating free cash flow generation while buying back $11.3 billion of its own shares. With Q1 FY2026 earnings due March 12, the stock's valuation has reached levels not seen in over a decade. The question for investors is whether the AI threat justifies this discount — or whether the market has overcorrected.