Will Adobe Be a Trillion-Dollar Stock by 2035?

Adobe (ADBE 0.81%) is already a legendary company. As the maker of Photoshop, inventor of the PostScript printing language, and pioneer of subscription-style software-as-a-service (SaaS) licenses, Adobe has put an indelible footprint on the history of creative software tools.

It’s one of the 40 most valuable stocks on the American market today, ahead of household names like PepsiCo (PEP 0.55%), Toyota Motor (TM 2.63%), and IBM (IBM 0.80%). These companies have been around longer than Adobe; they all collect more revenues per year; and they’re arguably better known as well. And Adobe still sports the largest market cap in this group.

Yet, Adobe’s impressive market cap is just $236 billion — a long way away from that coveted trillion-dollar club. Does Adobe have what it takes to reach that rare and lofty level over the next decade?

Let’s think about that.

Adobe’s trillion-dollar future by the numbers

I’ll get the math out of the way first. What would it take to lift Adobe’s market cap all the way to a full trillion dollars?

To get there by 2035, the stock would have to roughly quadruple in price in a 10-year period. That’s a compound annual growth rate (CAGR) of 15.5%.

It’s an ambitious target but not an unreachable one. Adobe’s stock has seen a 22.7% CAGR over the last decade and 17.6% in a 30-year period. The company could reach the trillion-dollar target by 2035 even if its growth rate slows down a bit.

Stock gains and business growth

So Adobe has a long history of market-beating stock returns, tracing a pretty clear path to $1 trillion just a decade down the road. Moreover, the stock’s gains are the result of equally impressive business growth.

Adobe’s revenues have increased at a 17.4% CAGR in the last decade, while free cash flows rose at an average rate of 19.7% and adjusted-net income soared 36.4% higher per year. The stock’s price gain ranks near the middle of this bundle, suggesting a fair-value boost in light of the actual business results.

Adobe’s AI-driven vision for future success

I’m still just looking in the rearview mirror, though. Past results are no guarantee of future success, and that crucial rule of thumb also applies to Adobe. How is Adobe planning to keep the good times rolling in the long run?

As it turns out, Adobe is tapping into the artificial intelligence (AI) trend. More specifically, the company is building generative AI tools into its entire Creative Cloud suite of media-creating platforms, from Photoshop and Premiere Pro to InDesign and Acrobat. You can use the Firefly generative AI engine to add or remove details in a photo or video, all based on instructions in basic English text. The results are not always great, and it takes a human editor to make the most of these early AI tools, but Adobe is an early leader and committed to long-term improvements.

Adobe’s early jump on generative AI has positioned the company for robust financial growth, at least for a few more years. The AI boom will eventually fade out, as all trends do, but Adobe should be left in a strong position after that quick bump. The company has a long history of successfully adapting to market changes, often leading the way into a new era.

For instance, Adobe was one of the first software companies to do away with the old style of buy-once licenses in favor of subscription plans for cloud-based services, and the new idea has become an industry standard. That’s just one example of Adobe’s innovative agility.

Adobe isn’t the only name in the creative software game, of course. Chief rival Apple (AAPL 1.72%) always puts up a good fight, especially in the field of video editing. I mentioned Big Blue earlier, and IBM rivals Adobe’s leadership in document management. Every step toward that trillion-dollar goal line will be a battle. At the same time, Adobe is well-equipped to get the job done.

Again, there are no guarantees in business, especially over a long period like the next decade. Still, Adobe seems likely to cross the trillion-dollar line by 2035. In fact, it won’t surprise me if the stock achieves this arbitrary yet glamorous goal a bit faster.