Adobe (ADBE -13.69%) has been a great growth stock for long-term investors. Over the past 10 years, shares of the cloud-based software company surged nearly 1,000% as it dazzled the market with its remarkable growth rates.

Between fiscal 2012 and 2022 (ended Dec. 2, 2022), Adobe's annual revenue enjoyed a compound annual growth rate of 15% as its adjusted net income rose at a 19% rate. That expansion was driven by the market's robust demand for its industry-standard media tools (like Photoshop, Illustrator, and Premiere Pro), as well as the expansion of its marketing, analytics, and e-commerce services.

Adobe's lack of meaningful competitors, the stickiness of its cloud-based subscriptions, and growth potential of its enterprise-facing services all still make it a sound investment for long-term investors. Today, I'll focus on three key aspects of this cloud king's business that smart investors should know.

A smiling person uses a phone while holding a cutout of a cloud.

Image source: Getty Images.

1. It wasn't always a cloud king

Adobe didn't always provide cloud-based services. It originally sold its software as desktop applications, which were purchased and installed through individual licenses.

That business model worked as long as each new software version represented a generational upgrade, but it lost its potency as each upgrade became less essential. By the late 2000s, Adobe's growth had cooled off significantly as its customers stuck with older versions of its software instead of buying the latest versions.

That slowdown drove CEO Shantanu Narayen to make a bold call to replace all of Adobe's individual desktop software licenses with cloud-based subscriptions. The company rolled out its Creative and Marketing Clouds in 2012, its Document Cloud in 2015, and integrated its advertising and analytics tools into the Marketing Cloud to create its Experience Cloud in 2017.

That strategy initially alienated some customers and squeezed its operating margins, but it ultimately paid off by locking in its customers, eliminating its unpredictable upgrade cycles, and stabilizing its revenue growth.

2. It could become an AI king

Adobe's evolution into a cloud king also puts it in a prime position to profit from the secular expansion of the artificial intelligence (AI) market. The company launched an AI and machine learning framework called Adobe Sensei in late 2016, and it has used that platform to enhance some editing tools across its Creative, Marketing, and Document Clouds.

But on a more buzzworthy level, Adobe recently launched Firefly to showcase Sensei's AI capabilities. Firefly is a generative AI tool that allows its users to create images, videos, and digital models with text-based prompts.

Adobe plans to integrate Firefly into its other Creative Cloud applications -- which could make it easier to create AI images from scratch in Photoshop or Illustrator -- as well as into its Document Cloud, Experience Cloud, and Adobe Express workflows. Firefly will even likely work with Figma, which Adobe is in the process of acquiring, to create user interfaces for software applications.

None of those AI tools are generating a lot of revenue or moving the needle for Adobe yet, but they could significantly strengthen its ecosystem, lock in its users, and widen its moat over the long term.

3. It could eventually compete against Shopify

Many investors don't immediately think of Adobe and Shopify as direct competitors. Yet Adobe actually bought Shopify's largest competitor, Magento Commerce, in 2018 and rebranded the platform as Adobe Commerce.

Adobe and Shopify both provide tools that enable businesses to set up their own online stores, process payments, fulfill orders, and manage their marketing campaigns. One key difference is that Shopify primarily serves smaller merchants, while Adobe Commerce targets medium to large customers. However, Shopify has also gradually been expanding into Adobe's backyard with Shopify Plus for larger businesses.

Another key difference is that Adobe Commerce comes in open- and closed-source versions, while Shopify is a closed-source platform. That flexibility might make Adobe Commerce a more appealing option than Shopify for certain businesses that want to more deeply customize their e-commerce services.

Over the long term, investors shouldn't be surprised if Adobe, Shopify, and Amazon continue clashing over the expanding market for integrated e-commerce services.

What do these things tell us about Adobe's future?

I believe all three of these things support the bullish case for Adobe. Its bold cloud-based transformation has kept it relevant as the market evolved, and its Sensei platform gives it a firm foothold in the nascent AI market.

As for Shopify, Adobe could eventually challenge this e-commerce leader and tether more merchants to its sprawling cloud ecosystem. That ongoing evolution and expansion could drive Adobe's shares to even higher levels over the coming years.