Adobe @ $241: I ran a DCF, Monte Carlo, and scenario analysis. Not the bargain people claim

I spent a few weeks building a full valuation model for Adobe after seeing the “ADBE is Microsoft in 2013” and “AI will kill Adobe” narratives going back and forth. I think both sides are mostly wrong. Here’s the summary. **The headline numbers look cheap:** * \~14x trailing earnings * 88%+ gross margins * $10B+ operating cash flow * 850M MAUs, 99% of the Fortune 500 * PEG of 0.75 **But the SBC problem changes the math.** Adobe spent 9.85B to \~$7.9B. That moves P/FCF from 9.4x to 12.3x. Still decent, but a different conversation. The buyback programme is essentially running to stand still against dilution rather than shrinking the float. **Why the MSFT 2013 analogy fails.** Microsoft had three things in 2014: a visionary new CEO (Nadella), a massive undermonetised asset (Azure growing triple digits), and monopoly pricing power that was being underutilised (20%+ Office price hikes with minimal churn). Adobe currently has zero of three. No CEO. Firefly at \~$250M ARR is less than 1% of total revenue. And when Adobe raised Photography plan prices 50%, the backlash was immediate. The structural difference: Microsoft sells productivity tools where AI *increases* seats. Adobe sells creative tools where AI may *decrease* seats. **Valuation:** * Base case DCF: $248/share (9.83% WACC, 10% near-term growth declining to 3.5% terminal) * Monte Carlo mean (10,000 simulations): $240 * Probability-weighted scenario analysis: $248 * Current price: $241 Three different approaches all converge within 3% of the market price. The sensitivity analysis shows WACC is the dominant variable. A 1% swing moves fair value by \~$60. So the real ADBE debate isn’t about revenue growth, it’s about what risk premium you assign to a leaderless company in the middle of an AI disruption cycle. **The one catalyst to watch:** The FTC settlement forcing easy cancellation means we don’t yet know Adobe’s real voluntary churn rate. Post-FTC data coming in Q3-Q4 FY2026 will tell us whether the historically low churn was real or artificially suppressed by cancellation friction. That’s the single most important data point in either direction. **TL;DR:** Adobe is approximately fairly valued. Not a screaming buy, not a short. The most boring conclusion possible, but I think the most honest one. Sometimes the contrarian take is that the consensus is right.