Adobe’s earnings, AI’s Political Woes, and SpaceX’s IPO (NOTW#95)
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Both indices were flattish/up this week but there was no shortage of news. From the potential restart of the war, to AI’s political woes, and going through Adobe’s earnings and SpaceX’s IPO. I go over all of these things in the market commentary section.
Without further ado, let’s get on with it.
Articles of the week
I published one article this week: SpaceX (SPCX): Defying Gravity.
I recorded a podcast episode with my friend Javier from Edelweiss Capital Research and thought it would be a good idea to translate the transcript to English. We go over pretty much everything you need to know for the now-live IPO:
How SpaceX made it: the rockets that exploded, the contracts with NASA, Starlink…
The current segments: $19B in revenue, 10M Starlink subs, the xAI merger…
The future business: space datacenters, Mars, humanoids…
Red flags that nobody is discussing
Valuation scenarios
I continued working this week on my in-depth report on the next technological frontier which I expect to publish next week.
Without further ado, let’s see what the markets did this week.
Market Overview
The indices were up this week, but pretty flattish:
Several interesting things happened this week. For starters, the war in Iran was close to “restarting.” The truth is that the war never really ended despite many investors totally forgetting about it, but Trump cautioned Iran and claimed that the US would strike the country and take Karg Island if a deal was not reached. That was until he saw that the stock market did not like the escalation and decided to walk it back claiming that they were close to a deal and that strikes had been called off (can’t make this up!). Markets rallied. It’s honestly pretty interesting (and a great case study) how Trump has found the infinite money glitch. The war has been called on and off a couple of times, and even though it continues, markets are considerably above where they were trading in April and nobody seems to remember that there’s a conflict in the Middle East. Funny how that works.
Politics were also the protagonist in another relevant event this week. Anthropic announced that Fable 5 (its new, most capable model) had been banned by the US government for foreign nationals (including those living in the US and foreign Anthropic employees). Wow!
I don’t know what will happen on Monday, but two things seem clear…
Looks like it’s bullish software (at least conceptually) because it signals that politics are already limiting AI’s power
Probably leads to many countries trying to develop their own AI models
This is the AI bear case and my hunch is that the AI trade bleeds on Monday (I might be very wrong). Even though many confidently claimed that AI had no limits…they forgot the most relevant and never-ending limit: politicians. It’s interesting because Dario Amodei (Anthropic’s CEO) had been claiming for a while that AI would destroy a lot of jobs. Interesting strategy considering that he was ultimately telling politicians that AI would interfere with their employment campaigns, and well…that did not play out well. This was honestly something that one could see coming…
Anyways, this is likely just the beginning of the story so we don’t know what will end up happening, but very interesting to see that politicians are already meddling with AI long before we achieved AGI. In this case it wasn’t because AI was destroying society but because the US sees AI superiority as an important geopolitical tool, but regardless of how you want to spin it, the conclusion is similar. Now, what’s interesting is that if this creates significant drops in the stock market, we might see Trump walking it back. Politics are always a two-way road!
Speaking of software, Adobe, one of the most punished software stocks, reported earnings this week. The stock dropped considerably the following day (even after falling considerably the day before) despite what appeared to be strong headline numbers.
The company beat both the top and the bottom lines and ARR growth accelerated. Now, this acceleration needs context. ARR growth did indeed accelerate from 10.9% in Q1 to 12.5% in Q2, but the recent acquisition of Semrush was partly responsible for this, adding $480 million. Excluding Semrush, organic ARR growth actually decelerated from 10.9% to 10.5%. To this we must add that Adobe’s management maintained the ARR growth guide of 10.2% for the full year even after the inclusion of Semrush (so they implicitly took it down organically). This means that they expect ARR growth to decelerate significantly in H2. Now, while this sounds very negative, management provided some context:
Our FY 2026 total Adobe ARR growth target of 10.2% now reflects both the addition of the Semrush book of business as well as the strategic choice to accelerate MAU freemium growth and defer previously planned Creative Cloud line optimizations. We believe this is the right long-term strategy to expand our customer base and strengthen the foundation for durable growth.
What management is ultimately claiming here is that they are focusing more on user growth than leaning on monetization levers. This may well be the best long-term strategy, but investors must still make a judgement call here. There are two options. Adobe is expanding the freemium growth strategy because…
They actually want to focus on freemium growth
They have no choice but to do so because they are finding problems to monetize
I wouldn’t rule out any of these and as a long-term investor I’d choose the first one all day long, but I believe it’s reasonable for the market to doubt the strategy when both the CEO and CFO simultaneously leave the company.
I honestly think the sell-off might have been overdone and that sentiment is at all-time lows in Adobe, but I’ve heard a lot of people say that, at the current valuation, Adobe is a good investment even if organic growth goes to 0%. This, imho, is a pretty dangerous thing to claim because if organic growth goes to 0%, Adobe would most likely have a pretty dangerous talent problem. Probably no worthwhile engineer would want to work for a no-growth business.
I’ve seen a lot of people too negative on Adobe, but also a lot of people that are clearly emotional holders of the stock. It’s fine to own something and admit that earnings were not perfect, and it’s also perfectly fine to not own something and admit that there were green shoots in the earnings. I used to own Adobe, sold it a while ago, and have decided to stay on the sidelines for now. When a CEO and CFO leave in such a “disruptive” scenario, it’s not rare to find more than one cockroach in the kitchen, but we’ll see.
Then we also had Space X’s IPO! The stock rose more than 20% in its debut and is now trading considerably above the $2 trillion mark.
I believe the valuation is pretty stretched at current levels, but I have no clue what it will do over the coming months (if I had to guess I’d say that it goes down, but who knows). Recall that if you are interested in learning about the company (a good idea before it gets to an attractive valuation) you can read my latest article (free to read):
The industry map was mostly green this week outside of the Mag 7:
Despite flattish to up markets, the fear and greed index dropped more and remained in fear territory:
I trimmed a position this week
This week I decided to trim a position. The stock is almost a 2 bagger for a 30% CAGR but it’s simply very challenging to make a valuation argument at current levels: