Same AI Fear, Different Balance Sheets: Intuit vs Adobe

TL;DR — Intuit is down 58% year to date and Adobe is down 34%. Both got hit with the same story — that AI is about to eat software — but their numbers are not in the same class: 12.5% versus 26% return on capital, 10x versus 8.7x free cash flow, dividend-plus-buyback versus a no-dividend buyback machine. My ten-year model puts Intuit at a 19.5% expected annual return from today's price and Adobe at 24%, but the bear cases carry very different weight.

Two companies, hit by the same sentence

Software is heavily overrepresented near the top of the 2026 first-half losers list. Within that group, Intuit and Adobe got assigned almost identical narratives: generative AI is going to make what these companies sell close to free.

I don't dismiss that story and I don't accept it wholesale. What I did instead was line the two companies up and score them on the same items. Here's the short version: the market sold them for the same reason, but their financial constitutions are not the same grade.

Intuit: there were real reasons behind that 58%

The name may not register but the products do. TurboTax, QuickBooks, Mailchimp. Millions of individuals and businesses pay for these every month.

Start with the bull case. The revenue base is monthly subscription software. You still have to file taxes and you still have to run your books, and per-user pricing isn't punishing. Customer count dropped by one to two million — but revenue per remaining customer rose 10%. In effect the company traded a pile of users paying little or nothing for fewer users paying more. On top of that, AI features are going into the products and being priced accordingly. After a decline of more than 56%, you can buy this at roughly 17 times expected earnings, which for a business this profitable is historically cheap.

The bear case is not trivial. Back to those lost customers. Intuit deliberately dropped about a million free TurboTax users. Separately from that, overall market share shrank by roughly one percentage point. One point sounds small until you convert it: that's about two million tax filings gone to competitors. And there's a remaining base of roughly seven million lower-end, price-sensitive users who could be next — cheaper options are coming for exactly that segment. The company also cut about 17% of its workforce. That is not a trim. Finally, investors have filed suit, alleging management knew it was losing customers to cheaper competition and talked up AI instead of saying so plainly. We don't know how that ends, but it sits on top of the stock.

Now the numbers. Market cap $78.3 billion, enterprise value $88.5 billion. The roughly $10 billion gap is net debt — against $7.76 billion of free cash flow last year and a $5.5 billion five-year average. That is comfortably serviceable.

Return on invested capital was 10.25% last year against a 12.5% five-year average. Not bad. But go back ten years and that number was above 30%. I don't wave off a trend like that.

The margin structure is what puzzles me most. Gross margin is close to 80%, yet net margin has sat around 22% for a decade without moving much. When each incremental unit is 80% profit before overhead and taxes, and the final margin still doesn't climb into the low-to-mid thirties the way it does at comparable companies, the read is that overhead stays heavy. Whatever the reason, this company spends.

On valuation: 17 times earnings, 10 times free cash flow. Free cash flow running above reported earnings isn't unusual in SaaS. It also means that while most investors anchor on net income, a 10% cash flow yield is sitting there unclaimed.

Here's my one complaint. If management genuinely believes their own company is cheap at 10 times free cash flow, I'd stop the dividend and put every dollar into buybacks. A dividend is a tax-inefficient way to return capital. Retiring cheap shares raises each shareholder's ownership directly: own one of ten shares outstanding, watch the company retire two, and you've gone from 10% to 12.5% of the business without lifting a finger.

Analysts are considerably less negative than the tape. About $23 per share in profit this year growing toward $40 in four years; revenue from $21.66 billion to $45.6 billion over seven years. That's over 10% growth a year, which is not what a dying business looks like. Then again, analysts are also the people who assigned enormous value to anything with a dot-com in the name.

My ten-year assumptions: revenue growth of 4% / 7% / 10%, free cash flow margins of 28% / 30% / 32%, an exit multiple of 18 / 21 / 24, and a 9% required return (intrinsic value with no margin of safety). Note that even my highest margin assumption is only what the company actually delivered over the past decade — I've already baked in AI compressing margins somewhat.

The output: a low case of $400, a midpoint of $583, a high case of $866. At today's $283, the midpoint implies about 19.5% a year. I reached a similar place in my separate look at Intuit's AI fear and its price-to-free-cash-flow multiple.

Adobe: down 34%, and every box still checks

Adobe is so embedded that people stop seeing it. Photoshop, Acrobat. If you've ever opened a PDF, you've used their work.

The bull case. This is the company everyone points at when they say AI will kill software — and yet Adobe's own AI product is the fastest-growing thing it has. Firefly is running near $300 million annualized and growing roughly 50% per quarter, with the business-facing side four times larger than a year ago. And here's the part I want to underline: Adobe partnered with Anthropic and OpenAI to sit inside Claude and ChatGPT. The companies supposedly replacing Adobe made Adobe part of their systems.

The core business is still a machine. Last quarter: $6.6 billion in revenue, up 13% year over year, and a fifth consecutive beat versus expectations. They also repurchased 8.5 million shares in the quarter.

The bear case has layers. First, people are leaving. The CEO who built Adobe into what it is stepped back into a board chair role, and the CFO departed abruptly in mid-June. When the top two leave around the same time, the market gets nervous. Add insider selling on top and it isn't a good look.

Second, Adobe is effectively giving product away to new users. The user base roughly doubled from 50 million to 90 million, but those users aren't paying full price. Management has already told investors this is a response to cheaper AI tools and that it means they can't raise prices right now. Users grow, revenue per user slows. That trade takes time to pay back.

Third, there's noise under the headline numbers: a $70 million write-down on an older part of the business, a $30 million legal reserve, and slowing growth in the core subscription line. That last item is what the market reacted to. But the two charges together are $100 million against a company that generated more than $10 billion in free cash flow last year. Proportionally, that's noise.

To the numbers. Market cap $89 billion, enterprise value $102 billion — a gap of about $13 billion. Free cash flow was $10.3 billion last year against an $8 billion five-year average. Better than Intuit on both counts.

Returns on capital are better too: 36% last year, 26% over five years. And it trades at 8.7 times free cash flow. A multiple like that means the market has priced this as a declining business — because if a business is shrinking, a very low multiple is the only way the math works.

The actual numbers don't say declining. Net margin is stable around 28%, gross margin is 89% (higher than Intuit's), and revenue has grown about 11% annually over the last three years. Eleven percent a year through exactly the three years when AI took over the conversation. I think there's a good chance the market has overreacted here.

Adobe passes every item on my checklist. And the thing I like most is the buyback pattern. The company has retired roughly 25% of its shares since 2016 — but the total matters less than the timing. They weren't buying heavily when the stock was high. They accelerated after it broke. This stock was $700 in 2021 and it's $222 today, and across that entire decline the share count chart keeps stepping down. No dividend; all of that cash goes into cheap shares. Honestly, that pattern gave me chills. Capital allocation this disciplined is rare.

Personally, I'd be happy if the stock stayed at this level for another seven or eight years while the company kept retiring shares. Long-term owners would come out ahead.

Analysts see $24 per share this year going to $45 in seven years, with revenue moving from $26 billion to $46 billion. Not Intuit's growth rate, but solid.

My ten-year assumptions: revenue growth of 3% / 6% / 9%, free cash flow margins of 37% / 40% / 43%, an exit multiple of 18 / 21 / 24, and a 9% required return. Output: low $400, midpoint $600, high $890. From $222, the midpoint implies about 24% a year.

One large caveat attaches to that. It assumes the market assigns a similar multiple ten years from now. That is the weakest link in the entire calculation. I own this one, and I go in expecting it to fall further after I buy. Continuing to buy a falling stock takes a specific kind of stomach, which is exactly why the process matters more than the conclusion. I worked through a similar comparison in my Adobe versus Salesforce breakdown.

Side by side

Item	Intuit	Adobe
Year to date	-58%	-34%
Market cap	$78.3B	$89B
Net debt (EV - cap)	~$10B	~$13B
Free cash flow (last yr)	$7.76B	$10.3B
Free cash flow (5-yr avg)	$5.5B	$8B
ROIC (last yr / 5-yr)	10.25% / 12.5%	36% / 26%
Price / free cash flow	10x	8.7x
Gross margin	~80%	89%
Net margin	~22%	~28%
Recent revenue growth	10%+ projected	11% per yr, 3 yrs
Capital return	Dividend + buyback	No dividend, buyback only
Checklist	All but one item	All items pass
Midpoint intrinsic value	$583	$600
Expected return at today's price	19.5%	24%

Where I land

On the table, Adobe wins nearly every line. More than double the return on capital, higher margins, a cheaper multiple, and far smarter capital allocation.

But I don't close this out as "Adobe wins," because the two risk profiles are different in kind. Adobe's bear case is mostly about people and strategy — leadership turnover, the free-user push, a pause on price increases. Those are reversible problems. Intuit's bear case is about the customer base itself — a point of share gone, seven million price-sensitive users exposed, and active litigation. That's heavier.

So here's my read. Adobe offers enough margin of safety at this price for me to own it. Intuit looks attractive on the numbers but deserves another quarter or two of watching to see whether the attrition trend stops. Both companies clear the first two questions — will they exist in thirty years, and will they earn more then than now. What separates them, as always, is the third question: price.

One last thing worth repeating. The fact that I own something is not a reason to buy it. What I'm sharing here is the process of taking a company apart item by item, not a conclusion — and running the same process with a different required return will land you somewhere else entirely.