Adobe Inc (NASDAQ: ADBE) remains in focus on Monday after Jim Lebenthal – the chief equity strategist at Cerity Partners – announced a contrarian bet on the software giant.
ADBE shares have been under pressure recently following surprise announcement that long-time chief executive Shantanu Narayen plans to step down after 18 years at the helm.
Still, Lebenthal sees the sell-off as an “attractive” entry point into Adobe stock that he believes is being unfairly penalized by overblown fears of artificial intelligence (AI) disruption.
AI fears are overblown in the case of Adobe stock
The primary catalyst for Adobe’s recent weakness – the departure of CEO Shantanu Narayen – is a bitter pill for many investors, given his tenure saw revenue explode from under $1 billion to over $25 billion.
Lebenthal admits it isn’t “something he’s happy about”, but the market expert is using the resulting volatility to his advantage.
He argues the market’s “bear case” – which posits that generative AI will eventually cannibalize Adobe’s core creative suite – is fundamentally flawed.
“I think the fears are overblown,” Lebenthal noted, citing the firm’s Q1 earnings and guidance that actually showed resilience.
According to Lebenthal, ADBE shares’ pullback is temporary and warrants an investment before the market realizes the AI-driven bear thesis may never come to pass.
ADBE shares remain attractively priced in 2026
Beyond headlines, Lebenthal’s bull call is rooted in fundamental valuation that looks disconnected from the company’s historical norms.
Speaking with CNBC, he pointed to a stark disparity between ADBE’s growth and its price tag – “sales growth continues to be over 10% while the price-to-earnings multiple remains at about 11x only.”
For a high-margin software giant, a forward P/E in the low teens is super attractive – especially as it maintains double-digit growth.
Moreover, Lebenthal isn’t just looking at earnings; he’s focused on the free cash flow yield as well, which “right now is 11%.”
This means Adobe shares deliver huge amounts of cash relative to their market cap – providing a significant “margin of safety” for investors willing to weather the current leadership transition.
Share buybacks offer another reason to own Adobe
Perhaps the most powerful component of Lebenthal’s thesis is Adobe’s aggressive return of capital.
The San Jose-headquartered firm has used its mountain of free cash to “buy back shares like crazy” – a strategy Lebenthal has successfully followed before with giants like Citigroup and GM.
“They’ve retired 10% of the shares outstanding in just two years,” Lebenthal highlighted, adding that this trend is set to continue.
This creates a powerful mathematical tailwind: even if growth stays modest, “net income will still continue to grow on a much smaller share count.”
Reducing the denominator positions ADBE stock to benefit from a boost to earnings per share – a move that Lebenthal said will lead to significant outperformance once the market’s temporary “AI fever” breaks and the focus returns to per-share value.
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