Today's number, four. That's how many

years some octopus mothers will go

without food while they guard their eggs

from predators. Scientists have

described these maternal instincts as an

inspiration. However, Brooklyn Beckham

has called it stifling.

Welcome to Profy Markets. I'm Edson. It

is January 29th. Let's check in on

yesterday's market vitals.

The S&P 500 hit 7,000 for the first time

ever to start the day. Still, all three

major indices ended the day flat after

the Fed's interest rate decision. More

on that in a minute. Meanwhile, the

yield on tenure treasuries increased.

Oil climbed after President Trump warned

Iran that a quote massive armada is

ready for violence. And Tesla stock rose

after hours as the company posted a

better thanex expected fourth quarter

report. However, revenue for the full

year dropped for the first time in

company history. Okay, what else is

happening?

The Federal Reserve is holding rates

steady after three consecutive cuts last

year. The central bank explained that

unemployment is showing quote some signs

of stabilization while inflation remains

quote somewhat elevated. In his remarks,

Chair Powell said that the outlook for

economic activity has quote clearly

improved since the last meeting and that

should matter for labor demand and

employment over time. Meanwhile, two

governors, Steven Myron and Christopher

Waller, dissented. They voted in favor

of a quarter point cut. Stocks wavered

after the decision to hold, pulling back

from a record high earlier in the

session. All right, here to discuss the

Fed's decision, we are speaking with

Michael Gapen, managing director and

chief US economist at Morgan Stanley.

Michael, thank you very much for joining

us on ProfG Markets.

>> Thanks for having me on.

>> So, this Fed decision, uh, the Fed held

steady pretty much as expected. There

were, uh, there was some dissent from

Steven Myron, from Christopher Waller.

Let's just start with your initial

reactions. Did anything jump out to you

from this Fed meeting? Well, as you

noted, the the decision to stay on hold

was widely expected. That was no

surprise. And so I think what markets

and I was looking for really was is the

Fed have they paused or are they on

pause? Right? In other words, was this a

a hawkish hold? Meaning they want to

signal that they will be on hold for a

long time. They don't anticipate

adjusting the policy rate for a long

time. or was it hey things look a little

bit better but we think as inflation

comes down we might ease later right did

they maintain an easing bias right so

that was really the key I think for for

all of us in markets and what I was

looking for was it a hawkish hold or a

dovish hold and I think we did get the

latter so the Fed certainly felt like

the economy has gotten better there are

some signs that the labor market has

stabilized

there doesn't appear to be a lot of

upside side risk to inflation. So given

that they had already moved 75 basis

points or cut three times, I think they

felt like it was time to stop, look

around and see how the economy evolved.

>> What does that mean for uh rate hikes or

rate cuts moving forward? And what does

that mean for the battle between uh

Donald Trump and and Jerome Powell? Of

course, the president has been pushing

for rates to come down. Uh how does this

change things if at all? The way that I

would describe it is coming into the

second half of last year, the Fed was

cutting rates on concerns about the

labor market. The Fed felt there were

downside risks to employment. So, they

were labor market-based cuts. But if

they've upgraded the outlook, they say

activity is is solid. I think it's hard

to deny that. And they said the labor

market or at least is showing signs of

stabilization. So, I think what that

means is cuts shift to inflationbased

cuts.

>> Okay? In other words, when it's when

it's clear, if they're right that

tariffs only inject temporary upward

pressure on inflation and once that pass

through is completed, inflation starts

coming back down, then the Fed can

normalize that the policy stands

further. So, I would describe it as a

shift from labor market based cuts to an

outlook of inflationbased cuts. So what

would mean the Fed doesn't cut is that

disinflation doesn't happen or if

inflation firms further and the labor

market tightens then maybe the Fed has

to even consider rate hikes. But I think

I think Paul made it pretty clear. He

said nobody is considering at least it's

not at anyone's baseline case that there

should be rate hikes. So, I think in

some ways the Fed is still kind of

cutting off the upper end of the policy

rate distribution and saying we're

either on on hold for a prolonged period

or inflation will decelerate and we can

move our policy rate lower. As you

pointed out, the administration would

clearly prefer lower interest rates. So,

what they want may come come later, but

I think the Fed sees the economy as as

warranting lower rates, but it may take

more time to get there. If it's all

about inflation now or mostly about

inflation as you say, uh what is the

Fed's view of what we're seeing um with

inflation right now? Because you know

it's it's still pretty high. The target

is two. Uh we're at 2.7 although there

are questions over whether that 2.7

number is accurate given the the

shutdown that we had in the government.

So, I guess the question being, what

does Jerome Powell think about inflation

right now? Does it appear to be uh a

real concern?

>> I would say each with each passing

month, they have greater confidence that

inflation will be coming down later this

year.

>> Okay.

>> So, the way that he's talking about it

is yes, there's clear evidence that

tariffs are pushing goods prices higher.

not meaningfully higher from the Fed's

perspective, but certainly they're

moving higher, and that's something to

to watch. But there are other goods

prices which are not as exposed to

tariffs. Those aren't moving higher. And

he said services inflation, which is

mostly about domestically generated

inflation, that that's decelerating. So

they look at it, I think they say

outside of tariffs, it looks like

inflation is decelerating towards their

target. So once we get through with the

pass through then goods prices can start

to come down as well or at least stop

rising. And so they have a pretty

favorable outlook. So I I think it's

more like a matter of time for them.

>> Okay.

>> How how quick how long does the pass

through last and then how quick does

inflation decelerate after? But a year

ago it was almost a year ago right after

liberation day. Very different story

right? They were very concerned about

upside risk to inflation and inflation

firming well above the target. Um, and I

think as time has gone on, they've been

able to see what part of inflation is

linked to tariffs, what's happening

there. Okay, it's moving higher a little

bit, but the rest of inflation still

looks good. In other words, no second

round effects on inflation. So I think

their view is is you know about as

confident as you can get given the given

the overall backdrop. Well, there are

some other questions I have, but I'm

just interested on your perspective on

that view because as an observer,

if the target is 2% and they're

indicating that they're comfortable with

2.7 and yet, as I've said, you know,

there are third party sources saying the

number is actually higher

>> given given the the shutdown and the

lack of data that we've seen after the

month of October that that we've seen

from the BLS. I guess I'm surprised that

there is a sense of comfort with that

number or that that is a reason to not

worry so much. I mean, it seems that the

2% number, the target has perhaps been

abandoned or at least they don't really

believe that that is the true target.

What would you uh say to that?

>> So, I think it's fair to still have

concerns and I think it's right to point

to the fact that we don't have the

entire picture on inflation. There's

probably some catchup still to be had in

the January data and certainly even into

next April and that's a legacy of the

shutdown and the inability of the the

BLS to sample prices when they when they

need to. So there is probably some

makeup effect there. So I think we you

know we shouldn't be so quick to declare

victory on inflation. I generally agree

with the Fed's view but what I would say

is we should really have a watchful eye.

inflation has been above or well above

the Fed's 2% target. I'm going on 5

years. How long can that happen and

inflation expectations still remain

stable, consistent and and low? Right?

So when if that market slips, if

inflation slips and inflation

expectations slip, getting that

realigned would be costly in terms of of

economic output and and perhaps un

unemployment. So I think the Fed's right

and I think the way they would answer

this question and I will answer this

question is that's why they're keeping

their policy rate at least modestly

restrictive.

>> Yes.

>> So they yes they reduced policy rates

and but they didn't get policy outright

easy. They made it less restrictive. So

they've left it a little restrictive and

they think that balances the pressures

they're getting on inflation now versus

the softness they were seeing in the

labor market. Of course, we'll see if

that's if that's true, but that's the

way I think they would answer it. Hey,

we're not we're not even neutral. We're

not even easy. We're we're still

restrictive on on balance, and that

should help guarantee that tariff pass

through is transitory.

>> Along these lines, more macro, another

topic that's been making headlines this

week is the the devaluation of the

dollar. Um the dollar fell to its lowest

level in four years on Tuesday.

Meanwhile, the massive runup in gold and

a lot of people I can't tell how much of

it is real, but a lot of people are

talking about the debasement trade, the

devaluation of the dollar, the

unsustainable deficits and debts which

Jerome Powell discussed. And in concert

with the massive rise in gold, it does

appear that perhaps there is this kind

of wholesale mistrust in US currency at

this point. And Powell's response to

what we've seen in with gold, he said,

quote, "We don't take a strong signal

from rising gold prices," which I found

interesting. And I've noticed a lot of

people are talking about that and

saying, "Well, maybe you should care

about gold prices." I just wanted to get

your views on what we've seen with gold

this week and also uh Jerome Pow's

response.

>> Well, I think the way the Fed would view

it is that there we're linking dollar

policy and gold policy or at least

dollar movements and gold movements

together.

The Fed doesn't set its policy rate to

target the currency, right? So, it it

will respond to fluctuations in the

currency and what that might mean about

growth in net trade or inflation,

but it doesn't make dollar policy,

right? Other central banks, it's

different. Primarily in the emerging

market world, you may actually set

interest rates to help guide the

currency because that generates a lot of

inflation, right? the tradable sector is

much more important. So I think what Pow

was saying is look it dollar policy and

de facto then if gold is representing

sustainability concerns both of those

are really treasury policy and so we're

we're not supposed to to comment and

that's there's a long history of that in

terms of the division between the two

institutions but

>> you know that said let's put that aside

to the premise of your question right

there there's a lot of concern out

there's let's say there's a laundry list

of concerns that all end up looking like

greater country risk for the United

States. Right? So whether it's concerns

about an unsustainable fiscal profile,

concerns about US policym broadly and

and whether it's trade disconnections or

uh geopolitical disconnections,

right? There's a lot of concern about

where US policy is is going. The rest of

the world holds a tremendous amount of

US dollar-based assets. It's about $62

trillion that the rest of the world

holds in US dollar assets, whether

that's direct holdings of US corporates

or bonds or equities uh or money

markets. And so there's really no asset

class where the rest of the world can

say, well, we don't want dollar assets

anymore. We're going to sell 62 trillion

and move them over here. Right? There is

no other market to rebalance to. So what

what we think is happening is that means

well I still have to hold dollar-based

assets. The question is at what price

and how do I hedge them. So the dollar

gets a lot of that expression as we

would say in in markets. The escape

valve for pressure and concerns about US

policym whether it's the debt profile or

geopolitical or otherwise all of that is

getting reflected in in the dollar. So

there's a number of factors that are

causing dollar volatility and yes

usually officials whether it's the

Treasury or the Fed will get worried

about rapid movements in in currency

markets and we did kind of get that this

week. Right. So and we had comments by

Secretary uh Treasury Secretary Bessant

today. No, we're not intervening in

favor of a weaker dollar. Right? So

sometimes policy makers do have to step

up to at least stabilize the situation

and and reduce volatility. But I would

expect that these dollar concerns will

be with us for some time.

>> And to to your point, concerns about

debasement of fiat currencies and

therefore that may drive demand at

certain points in time for things like

crypto, Bitcoin, and and gold.

>> What did you make of uh the president's

response to these concerns? I mean, it

he made a lot of headlines. He said,

"I'm not too worried about it." He said,

you know, he said this comment about the

dollar goes up, it goes down. It's like

a yo-yo.

A lot of conclusions I think people are

trying to draw out of perhaps not that

meaningful words. He's just, you know,

talking to a reporter. But I'd be

interested to hear your response to

that. I think the takeaway for a lot of

people is this is a big deal. And it

sounds like from what you're saying, it

is a big deal. And yet the president is

saying, don't worry about it. Goes up,

it goes down. Well, I I think it's akin

to what Treasury Secretary Besson said

in the sense of, "Hey, we're we're we're

going to at least come to you in the

moment without expressing too much

concern. You know, we've got we've got a

handle on the situation." I would agree

with you. I wouldn't read too much uh

into uh into those comments and I would

just read the totality of the

administration's response to it,

including what what Secretary Bessant uh

said. So it's, you know, and that said,

you know, I think what the market is

concerned about is if you go all the way

back to the Mara Lago accord, which was

viewed as generally an expression of the

administration's intent on on economic

and trade policy. There is a lot in that

document um about an overvalued currency

and the negative effects that that has

had say US manufacturing employment, the

outsourcing of activity um outside the

US. So I think investors come to the

table in this discussion thinking the

administration wants a weaker dollar. So

they're probing is this what you want?

Is this what you wanted? And so that's

where I kind of think that therefore

they're hyper sensitive to anything that

the president or the treasury secretary

would say around this issue.

>> Yeah. One last question, we'll let you

go. The Fed chair is or the new Fed

chair is an open question. Uh we thought

it was going to be one of the Kevin. Now

it appears it's going to be Rick Reer or

at least his chances have gone up. If we

look at the prediction markers, he's at

46% probability at the moment. Do you

have any thoughts on who the next Fed

chair might be? Uh, and perhaps how much

it matters.

>> So, I I have a stronger view on maybe

who it's not than who it will be of the

remaining three.

>> That works.

>> I I do think that the timing of the GO

the DOJ subpoena served to the Fed um

has certainly helped I think reduce the

likelihood that Kevin Hasset uh will

will be the chosen one. and Trump's

remarks saying, "I'd prefer to keep you

where you are," I think foreshadows that

a bit. So maybe it was the Senate's way

of of saying not this person given given

the risks to the institution. So that

leaves Rick Reer, Kevin Worsh, and and

Governor Chris Waller. I mean Rick Reer

to your to your question, he's been in

financial markets for about 35 years. So

he has a deep extensive knowledge about

how financial markets work. That's

important of course because Fed policy

is transmitted to the economy through

financial markets. Now some will say,

"Oh, but you know Rick Reer isn't a PhD

economist." And my response to that will

be, "Well, neither's neither's Jerome

Powell." And it's really not the job of

the chair to necessarily be the best

economist in the room. The job of the

chair is to help build a consensus to

manage the committee to herd the cats

>> and communicate to financial markets and

the broader public. Rick is certainly

capable of doing that. So I I think

whether it's Rick Reer or Kevin Wish or

Chris Waller, I think they're all

capable to to do the job and and I would

just say recent events tell me more

about who it's not going to be than than

who it will be. So no strong view for

me. Betting markets of course have their

view. We'll see what the president

chooses.

>> Michael Gapen, managing director and

chief US economist at Morgan Stanley.

Michael, this was extremely informative.

Thank you so much.

>> Thank you.

>> We'll be right back. And if you're

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We're back with property markets.

Meta and Microsoft both reported

earnings that beat expectations on the

top and bottom lines. Microsoft's

revenue increased 17% year-over-year.

However, cloud growth was slightly lower

than the previous quarter. Investors

were not impressed and the stock fell as

much as 4% after hours. Meanwhile,

Meta's fourth quarter sales rose 24%

from a year earlier. The company also

issued stronger than expected sales

guidance for the current quarter and

that sent the stock up as much as 9%

after hours. Here to help break down

these earnings, we're speaking with Gil

Lura, head of technology research at DA

Davidson. Gil, welcome back to the show.

>> Uh, thanks for having me back.

>> So, we just got these earnings from Meta

and Microsoft. I think we should

probably start with Microsoft here. beat

on the top and bottom lines but stock is

falling as much as 5% uh in after hours.

What did you make of the the quarter and

what do you make of the market's

reaction to the quarter?

>> Yeah, it was a small beat. What uh I

think the aftermarket activity is a

little bit of investors being picky

about Azure growth. They wanted 39%

growth and they got 38% growth. Having

said that, just a few seconds ago they

guided that next quarter will be a 37 to

38% growth. So I think investors will be

able to relax a little bit especially

when they realize that some of the other

numbers they reported like remaining

performance obligations for this year

are also up 39% which is to say the

growth of Azure this year is already in

the books. So they're in very good

shape. I I believe that by the time

investors fully digest these results,

they'll realize Microsoft is still doing

great. Let's not forget that 38%

compares to 32 at Google Cloud and low

20s at AWS and Amazon. So, Microsoft is

still doing the best of all the large

cloud providers. And again, we now know

that that's going to be the case for the

rest of the year. Let's just touch on

their remaining performance obligations

here up. But something that stuck out to

me, 45% of those remaining performance

obligations are coming from open AI. And

this is something that you and I have

discussed.

>> That's right.

>> Many times. Can you trust that? Um it

seems like investors don't trust it, at

least based on the initial reaction from

the markets. What do you make of the

fact that 45% of the revenue to come is

coming from this company that we've

discussed can't we can't really trust?

>> Yeah, the the next couple of months are

going to be critical from the Open AI

perspective. OpenAI is out in the market

trying to raise capital. Uh if they can

raise the $50 billion they're aiming

for, they have somewhere between 20 and

40 billion on the balance sheet. If they

can raise the 50 billion, they'll be

fine. And even if they raise less than

that, what's different about Microsoft

and the discussions we've had about

Oracle or Coreweave or AMD is that

Microsoft is front of the line. Any

dollar that Open AI gets, Microsoft has

first cling to it. Not only is it an

investor, it's also the primary compute

provider to OpenAI. So even if we're in

a scenario where open has to scale down

significantly and may not be able to pay

Oracle or Coreweave or AMD, it'll pay

its Microsoft bills. So that makes us

feel better about that. But clearly it's

a huge part of Azure's growth and it's

the use of Chad GPT. We're all using

Chad GPT more and and that's the piece

of the business that Microsoft will

continue to have. The more speculative

parts is if OpenAI comes back to us and

raises a hundred billion dollars, then

everybody's dreams can come true.

>> Moving on to Meta, I think the thing

that jumped out to me and I'd like to

get your reaction is the capex guidance.

Um they they're guiding 115 to$135

billion

in capex in 2026. I guess what is

striking to me last year they made that

a similar announcement. We're going to

spend a lot of money. Markets didn't

like it. They're saying the same thing.

Markets do like it. What did you What

did you make of the reaction?

>> The the key is that that core meta

selling ads business is doing so well,

investors are willing to give Mr.

Zuckerberg a pass. Uh he's he's still

growing that ads business in the mid

20s, 24 25%.

Which is remarkable at this scale. By

the way, it's twice as fast as Google's

growing its ad market, which tells you

Meta is a significant share gainer,

which just gives Mr. Zuckerberg a free

pass to do whatever he wants. Cuz let's

not forget the numbers you just talked

about are pretty comparable to

Microsoft. Microsoft turns around and

sells that entire capacity to paying

customers. Meta only uses a fraction of

that capacity to make ads better and

sell ads for more. The rest is just a

sandbox to build new models that he's

not even sure what he's going to use

them for. He got asked a couple of times

on the conference call, what's this even

for? And he said, you know, this isn't a

good time to ask me about that. Ask me

about that later.

And people are okay with it. The the

growth in that ad business, what's the

story there? Is that is that people

using meta apps more? Is that more

users? is that uh higher CPMs on on

advertising is all of the above. I mean,

what's the story behind the more than

20% growth in that ad business, which is

already gigantic?

>> Well, it's all of the above. They're

selling a double digits more uh ads for

double digits higher prices. And to be

fair to them in terms of the AI

investment, it's because they're so good

at AI. Our algorithms for feeding for

our feed are getting so much better. And

the algorithms for predicting what ads

we're going to click on are so much

better that they can drive that kind of

remarkable growth. Again, that doesn't

mean they need 125 billion of capex to

do that. They only need a fraction of

that. But what they are getting so good

at using AI to make our feeds more

compelling, more organic content, more

original content, more domestic content,

more content that we find compelling

that it's helping them sell a lot more

ads for a lot higher prices. Just

looking at the valuations here. Uh

Microsoft trailing PE of 34, Meta

trailing PE 29 are coming up on 30. Do

you have any views on on the valuations

of these companies at this point? Does

this change your view uh in any

capacity?

>> Yeah, so Microsoft is trading at a

discounted historical trading rates.

Usually trades between 25 and 35 times

for PE. Right now as of after the

market, it's around 26 times. on the

lower end. Meta tends to trade at the

low 20s, which is where it's at right

now. But what's interesting to note is

that Google is trading in the high 20s

on PE, where their historical range is

more in the low 20s. And that's in spite

of the two things that I pointed out.

Microsoft Azure growing faster than

Google Cloud, Meta Ads growing faster

than Google Ads. So, Google is trading

at a premium to these two other

businesses that are growing faster.

That's all narrative. That's all this

belief that Google has already won AI.

The game's over and Google's the only

winner. As you can tell from my tone,

I'm a little skeptical of that. I think

Google's a winner, but it's probably not

the winner, and therefore, Meta and

Microsoft should be able to outperform

this year as the market rebalances its

perspective on who's winning and who's

not winning. It is very interesting the

vibe shift here because if we were to

rewind 12 months ago, I mean it was a

totally different narrative and this was

something that we talked about on our

show. Why is Google get getting beaten

up and beaten down when it has all of

this potential in AI? What you're saying

is I think correctly the narrative has

completely flipped. People are extremely

excited about Google. If you had to sort

of stack rank the big tech and the big

AI companies in terms of vibes, in terms

of how Wall Street, how investors feel

about their growth projections uh and

their ability to capitalize on AI, how

would you characterize the vibes on on

each of these companies at this point?

So, right now, the vibes for Google are

the best and the vibes for Microsoft and

Nvidia are the worst. And and I would

argue that Microsoft and Vidia are going

to do better this year than Google in

terms of results because you mentioned

that huge shift, right? Google is

trading at 18 times forward earnings

just a few months ago. Now it's trading

at closer to 28 times earnings. You know

that their estimates haven't moved. So

it's all multiple that it's not that the

projections for the business have

changed at all. Just narrative just

based on people getting excited about

Gemini. So Google is very much in favor.

Microsoft and and Nvidia very much non

favor. But if you ask me who's going to

actually grow the AI, get more of the

profit dollars generated by I this year,

it's going to be first and foremost

Nvidia as it always has been. And then

it's going to be Microsoft.

>> Final question before we let you go.

Google search interest for AI bubble is

off about 80% from its peak in November.

Where do you land on the AI bubble fears

or the AI bubble not fears? Um, is this

something that you're thinking about

still? I mean, what do you make of how

the conversation has kind of progressed

or maybe regressed in the past few

months?

>> Yeah. No, it's all we think about and

and where we land is AI uh is is going

to have a tremendous impact. We're still

going to invest a lot. Everybody's going

to use AI more for more things both as

consumers as an employees. that's going

to drive a lot more data center

buildout. That's not a bubble. There's

real behavior, real demand. There is a

lot of bubbleicious behavior, a lot of

bubblelike behavior happening. Anybody

borrowing money to build a data center

that doesn't already have customers,

that's speculative behavior. That'll

come back to bite us. So, there is a lot

of bad behavior. All those circular

deals that we've talked about, bad

behavior. But at the core and again

that's what we especially talk about

your Microsoft your Amazon your Google

your Nvidia at the core s our global

economy is going to continue to invest

in AI and get good results from that and

any big technology cycle there's bad

behavior that happens around it but at

the core this is a good investment

Gurria head of technology research at

DAD Davidson Gil always appreciate your

time thank you

>> thank you we'll be right back and if

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We're back with Profy Markets.

Well, we haven't made a stock pick so

far this year, but there's one company

that we've had our eyes on for a while

now, and that company is Adobe. For

those that don't know about Adobe, this

is the top design software company in

America. They've been around for a long

time, founded in 1982.

They created Photoshop and Premiere Pro.

They even created the PDF. So, if you're

using a computer, you're pretty much

interacting with Adobe every day.

Anyway, over the past few years, the

stock has gotten hammered. It's down 33%

from a year ago. It's down 50% from 2

years ago. It's down 56% from its peak

in 2021. The past few years for Adobe

have been pretty brutal. And there are a

few reasons for this. One is that

revenue growth has slowed. They used to

be growing around 20% a year. They're

now growing around 10% a year. Two,

there's been new competition that has

emerged, for example, Figma, which we

have talked about, and I'll touch on it

in a moment. Also, Canva. And three, AI

happened. And the consensus among

investors is that Adobe will be an AI

loser. Why? Because AI will potentially

reduce the number of designers and

therefore reduce the number of designers

that use Adobe. So that is kind of the

bare case that has played out and as a

result Adobe is now trading at one of

its lowest valuations in a very long

time. Its price to sales multiple is

5.5. That is roughly 50% lower than its

5-year average. Its price to earnings

multiple is 18. Also 50% lower than its

5-year average. More importantly, it's

also about 40% lower than the average of

the S&P. In fact, Adobe shares are now

trading at their cheapest levels since

the early 2010s when the market was just

coming out of the Great Recession. So,

even if you're bearish on Adobe, even if

you don't think it's a great company,

the fact of the matter is the stock is

cheap right now. But if you're not

bearish, and if you do think Adobe is a

great company, well, then it's really

cheap. And we do think it's a great

company for a number of reasons. for

example, that revenue growth. Perhaps

10% growth doesn't really excite you.

But you have to also consider the base

that we're working off of here. Adobe

did $24 billion in revenue last year.

That's almost 10 times larger than

Canvas business. It's also more revenue

than Door Dash and Airbnb combined. And

yet, it's still growing at a

double-digit clip, which is still pretty

impressive. Plus, they're doing more

with less. Adobe's revenue per employee

hit more than $750,000

last year. That's 40% higher than

Salesforce. And it also would explain

Adobe's unbelievable gross margins of

90%. That is one of the highest of any

large cap software company in the world.

Let's also talk about AI. As I

mentioned, some people think that this

is an AI loser, but that seems to

contradict what is happening on the

ground, and that is Adobe is already

winning from AI. Their AI tools have

already generated more than $5 billion

in ARR. Meanwhile, since 2022, when AI

first came onto the scene, revenue per

employee jumped more than 20%. In other

words, AI is both enhancing the

operations inside the company, but also

making the product better, which is why

they're making more money off of it.

There's also a pretty significant and we

think underappreciated tailwind for

Adobe right now, and that is short form

vertical video. As I'm sure you know,

this medium is huge. 95% of Americans

are watching short form content

regularly. A third of us are watching it

multiple times an hour. Short form is

the future of content. And as a result,

huge amounts of resources are being

plowed into this medium right now. And

this is happening at every media

company. It's happening at the New York

Times, CNN, ESPN, Fox. It's also

happening at Profy Media. We are

investing heavily in short form. And if

you're doing that, which we all are,

it's most likely that your team is using

Adobe's products to edit and clip the

content, specifically Premiere Pro. This

is what most professional video editors

use. Which brings me to the final point,

and that is competition. Yes, Canva is

growing very quickly. Yes, Figma is

growing very quickly, too. But that

doesn't necessarily mean they're eating

Adobe's lunch. perhaps in some

instances, but you have to remember this

is a huge market and it's only getting

bigger. One survey suggests that people

in non-design roles are now doing way

more design work right now, largely

because of new AI tools. It basically

just means there are more designers out

there. Another survey found that more

than 80% of creators are using some form

of AI at this point. The implication

being it's not just going to be one of

Canva or Figma or Adobe that wins here.

All of these companies are likely AI

winners. And before you come for me in

the comments, I understand that Figma

has been controversial. It exploded to

120 after it went public. Came crashing

down to $28 per share. I just want to be

clear. I did not recommend Figma at 120.

You can go back and listen to the

episode. I recommended Figma at the IPO

price, which was $33 per share. And by

the way, I would still recommend it at

33, which is why I actually believe the

stock is also a buy right now. It's

trading at 28. But the topic of today is

Adobe. So, let's stay with that. It is

hard to deny the extent to which

investors have beaten down this stock.

And not necessarily because of the

actual business, but because of their

perception of the business, because of

the story that they're telling about the

business. A story which we don't think

is that compelling. Now, as Warren

Buffett says, the secret to investing is

to find wonderful companies at fair

prices. Well, this is a company with 90%

gross margins, 24 billion in revenue, 7

billion in profit. It's trading at its

lowest valuation in years. Two

adjectives come to mind for us,

wonderful and fair. Thank you for

listening to Profy Markets from Prof

Media. If you liked what you heard,

subscribe to our YouTube channel and

tune in tomorrow for our conversation

with Katie Martin.