A True Contrarian Play on an AI ‘Casualty’
The AI narrative continues to power equities higher. The advance has been led by the semiconductor stocks here in 2026 as demand from hyperscalers for NAND, DRAM and GPUs has triggered a surge of prices for these components.
As a result, revenue growth and profit margins have soared at names such as Micron Technology ($MU). Higher prices have boosted hyperscaler capex budgets further upward and forced the likes of Apple ($AAPL) to raise prices across its product portfolio considerably in recent weeks.
A casualty of the AI Revolution has been much of the software sector, which has suffered due to growing fears of having their business models being disrupted by improving AI capabilities.
Recently, I have taken a stake in Adobe ($ADBE) whose stock is down some 40% from its recent highs last summer and was brutalized during the “SaaSpocalypse” earlier this year. However, the stock has started to rebound in recent weeks and hopefully put in a bottom last month. Adobe sports a market cap just slightly south of $90 billion, and the shares currently trade at just under $225.
Best known for its PDF files that are part of everyday corporate life, Adobe is a provider of web and graphic design tools; photo, video, and audio editors; as well as print layout, animation, and digital marketing software primarily to creative and marketing professionals. The company has a huge customer base with over 800 million monthly active users across its product suite.
If AI is coming for Adobe, it hasn’t happened yet. Revenues rose 11% in FY 2025 to just under $24 billion, which led to a 14% increase to EPS to nearly $24 per share. The company delivered around $10 billion in operational cash flow in the fiscal year. Adobe has easily beat top and bottom-line expectations with its last two quarterly results and is incorporating AI into its product offerings.
Adobe bought back just over $23 billion of its own stock via share repurchase authorization initiated in early 2024 and management authorized another $25 billion stock buyback earlier this year. The current analyst firm consensus has tilted negative on the stock here in 2026 even as the same analyst community believes the bottom-line will grow in the low to mid-teens annually over the next few years.
Even with the recent rebound in the stock, the shares trade for just over 9x forward earnings estimates. A lot of pessimism seems priced into the equity, and I can make the entry point cheaper still by executing the following covered call trade.
Option Strategy
Here is how one can establish a position in ADBE using a covered call strategy. As a reminder, covered call orders involve buying an equity and simultaneously selling just out of the money call strikes against the new position.
Selecting the February $200 call strikes, fashion a covered call order with a net debit in the $176.00 to $177.00 a share range (net stock price – option premium).
This strategy delivers downside protection of 21% across the trade expiration. The strategy also provides upside potential of about 13% for the option duration at the net debit range midpoint even if the stock trades down 10% over the duration.
At the time of publication, Jensen was long ADBE.
