Investors who bought Meta Platforms stock in October 2022 have managed a 500% return in three and a half years. And it looks a bit like history might be repeating itself.

Adobe (NASDAQ:ADBE) stock is at a five-year low and trading at a forward price-to-earnings (P/E) ratio of 11. But could buying today be like investing in Meta at its 2022 lows?

Disruption?

There are definitely similarities. At its lows, investors were concerned that privacy changes on Apple devices were going to undermine Meta’s ability to deliver valuable targeted advertising.

Meta got around this by using artificial intelligence (AI) to help understand its users. But as of today, AI’s the risk that the stock market is worrying about with Adobe’s business.

The concern is that lower barriers to entry could create more competition. And this might result in either a loss of customers or an inability to keep increasing prices for the users it has.

That’s why the stock’s down around 64% from its all-time highs. But, like Meta in 2022, the company’s making good money and its core business is still growing.

Results

In its latest report, Adobe announced 12% revenue growth and a more than 300% increase in sales from AI-based products. And operating margins also remained strong. That hardly looks like a business going backwards. But there’s a bit more to the firm’s results than this – anyone concerned about the AI threat has plenty to focus on.

Adobe’s 12% revenue growth came in the context of a 20% increase in monthly active users. So the company is attracting new people primarily onto its free or low-cost tiers. No doubt the firm plans to turn these into higher-value customers over time. But the risk is that this isn’t going to be straightforward with a lot of AI-native competitors around. 

Outlook

Adding more users is a good thing for Adobe. But that only speaks to half of the concern investors have about the implications of AI for the business. Signing customers is one thing, but turning them into high-margin subscription revenue is another. And on that front, the real test is yet to come. 

I don’t think investors are going to have a clear answer to this question within the next year or so. I’m expecting more of the same – solid results surrounded by ongoing uncertainty. That makes it difficult to think about buying the stock in this situation. But that was also the case with Meta Platforms when it was trading at historically low multiples.

Am I buying?

The similarities between Meta in October 2022 and Adobe right now are striking: both stocks trading at historically low valuations despite the underlying businesses doing well. Meta obviously came through its challenges impressively and investors who bought the stock have done very well. But that doesn’t automatically mean Adobe can do the same.

The stock’s cheap, but there’s a lot of uncertainty I don’t think will become clearer any time soon. So I’m focusing on more obvious opportunities for the time being.