Will Adobe Be a Trillion-Dollar Stock by 2030?

Adobe's (ADBE 0.87%) stock price sank 11% during after-hours trading on March 14 in response to the cloud-based software provider's latest earnings report. For the first quarter of fiscal 2024, which ended on March 1, its revenue rose 11% year over year to $5.18 billion and exceeded analysts' expectations by $30 million. Its adjusted EPS grew 18% year over year to $4.48 and also cleared the consensus forecast by a dime.

Adobe's headline numbers looked healthy, but its guidance was uninspiring. It expects its second-quarter revenue to rise 9%-10% year over year to $5.25-$5.30 billion, which slightly missed the consensus target of $5.31 billion. It sees its adjusted EPS increasing 11-13%, which matches analysts' expectations for 12% growth.

Image source: Getty Images.

Adobe's slowing sales growth suggests its generative AI platform Firefly isn't generating meaningful tailwinds yet, and its announcement of a new $25 billion buyback plan -- which follows its failed attempt to acquire Figma for $20 billion -- suggests it's running out of ways to expand its business.

That might be why Adobe still only has a market cap of $230 billion while several of its peers are worth over $1 trillion. So can Adobe follow those tech giants into the four-comma club by the end of the decade?

Why is Adobe losing its momentum?

Over the past decade, Adobe transformed its desktop-based software -- including Photoshop, Premiere Pro, Illustrator, and Acrobat -- into cloud-based services. It expanded that ecosystem with more marketing, e-commerce, and analytics services.

From fiscal 2013 to fiscal 2020, Adobe's revenue grew at an impressive compound annual growth rate (CAGR) of 18%, even as it weathered several financial crises and a global pandemic. Two core strengths supported that expansion: Its subscriptions were sticky, and its industry-standard digital media tools couldn't be easily replaced. But over the past three years, Adobe's total revenue growth decelerated as its Digital Media and Digital Experience segments lost their momentum.

Data source: Adobe.

The Digital Media segment, which includes its Creative and Document Clouds, accounted for 73% of its top line in fiscal 2023. This core business struggled with macro and micro challenges for the media industry, tough currency headwinds (which reduced the segment's growth by three percentage points in fiscal 2023), and competitive pressure from Figma in the software user interface (UI) and user experience (UX) markets.

That's why Adobe's failure to buy Figma was disappointing. The acquisition could have boosted the Creative Cloud's near-term revenue and eliminated a major competitor. Instead, Adobe had to pay Figma a $1 billion termination fee after antitrust regulators scuttled the deal.

Adobe is trying to offset that loss by expanding its generative AI platform Firefly. Firefly can help designers create photos, videos, and 3D models with just a few text-based prompts, and it can be used to accelerate other tasks across both the Digital Media and Digital Experience ecosystems. Firefly made Adobe a popular stock in the buying frenzy in AI stocks over the past year, but it still hasn't meaningfully boosted its digital media sales yet. To make matters worse, Adobe still faces another Federal Trade Commission (FTC) probe in the U.S. regarding its subscription cancellation policies.

Meanwhile, Adobe's smaller Digital Experience segment, which handles its other enterprise-facing cloud services, also faced tough macro headwinds. Currency headwinds further reduced its revenue growth by a percentage point in fiscal 2023.

Could Adobe become a trillion-dollar stock by 2030?

From fiscal 2023 to fiscal 2026, analysts expect Adobe's revenue to grow at a CAGR of 11%. They expect its EPS to increase at a CAGR of 16% as it streamlines its spending and buys back more shares. At $508 per share, its stock looks reasonably valued at 28 times this year's adjusted earnings.

If Adobe's valuations hold steady as it matches Wall Street's expectations and continues to grow its EPS at a CAGR of 15% from fiscal 2026 to 2030, its stock could be trading at about $900 with a market cap of just over $400 billion. But if it continues to struggle with the macro, competitive, and regulatory headwinds, it could miss those targets and its valuations could crumble. Simply put, it doesn't seem like Adobe will join its larger peers in the 12-zero club by the end of the decade.

For now, Adobe has a lot to prove. Its core growth engines are cooling off, its closely watched AI platform isn't moving the needle yet, and it's running out of ways to expand without triggering more antitrust probes. Investors should focus on those challenges instead of wondering if the cloud giant will ever become a trillion-dollar company.