Adobe in a Technological Downtrend - Catch-Up Potential in the Shadow of a Boom Market

The technology sector is booming, yet Adobe currently finds itself in the shadow of its former growth story. After a turbulent year, the company's stock price hovers around its lowest level since June, while the S&P 500 and the technology sector overall are experiencing price increases. Adobe has been experiencing relative weakness, particularly since the disappointing earnings report in March, and remains behind the industry giants despite a brief upswing in June. Unlike many competitors, Adobe's fiscal year calendar differs from typical reporting times for quarterly results, which means that the final report for the fourth quarter and the entire fiscal year is not expected until December. The company's own forecasts paint a picture of solid yet unspectacular results. The Vanguard Information Technology ETF, which closely mirrors the development of the technology sector, has seen an increase of 21.8% year-to-date, outperforming the S&P 500. Adobe, on the other hand, not only trails these benchmarks but also falls behind with a decline of 19%—it is the weakest link among the top 10 holdings of the Vanguard Information Technology ETF. Historically, investors might be tempted to invest in undervalued laggards when a sector-wide rally continues. However, this is not the case with Adobe; the reasons for this may be more fundamental in nature. The revolutionary shift to the SaaS business model in 2012 once led to enormous revenue and margin growth, establishing Adobe as a heavyweight in the enterprise software market. Nevertheless, growth dynamics are stagnating. In recent years, operating expenses have risen at a proportionately higher rate than revenues; margins are suffering. Despite intensified stock buybacks over the past three years, diluted earnings per share have only increased by 18.2%. At Adobe's investor conferences in recent years, there has been talk of artificial intelligence as a driver for innovative growth and enhanced customer experiences. However, these investments have not yet led to the anticipated profit increase.