Why Adobe, Inc. (ADBE) is Among the Best Augmented Reality Stocks to Buy According to Hedge Funds

Adobe, Inc. (NASDAQ: ADBE) has emerged as a standout player in the augmented reality (AR) sector, with hedge funds increasingly recognizing its strategic position in a market poised for explosive growth. As of Q4 2024, Adobe ranked 6th among the top AR stocks held by hedge funds, with 117 institutional investors holding stakes in the company. This article explores why Adobe’s AR initiatives, financial resilience, and institutional support position it as a compelling investment opportunity in 2025 and beyond.

The AR Market: A Growth Engine for Adobe

The global AR market is projected to grow at a 42.36% compound annual growth rate (CAGR) through 2029, reaching $248.38 billion by the end of the decade, according to Mordor Intelligence. Mobile AR, which leverages the 1.7 billion smartphones and tablets currently supporting AR, is the primary driver of this expansion. Adobe’s Creative Cloud platform, particularly its Adobe Aero tool, is a key enabler of this trend.

Aero allows users—from marketers to educators—to design immersive AR experiences without requiring specialized coding skills. This democratization of AR creation has positioned Adobe as a leader in industries such as healthcare (training surgeons), automotive (visualizing custom vehicle designs), and retail (enhancing customer engagement).

Hedge Fund Backing and Institutional Confidence

Adobe’s inclusion in the top 11 AR stocks by hedge fund holdings is no accident. The company’s strategic focus on AI and AR integration aligns with institutional investors’ long-term growth expectations. Notably, billionaire Steve Cohen’s Point72 Asset Management holds a $333.08 million stake in Adobe as of April 2025, ranking it 4th among Cohen’s top large-cap picks.

The concentration of hedge fund interest reflects confidence in Adobe’s ability to capitalize on AR’s growth. The company’s AI-driven tools, such as Adobe Firefly and GenStudio, further amplify its appeal. These tools are part of a broader $125 million AI-related revenue stream in Q1 2025, a figure Adobe aims to double by year-end.

Financial Performance and Growth Catalysts

Adobe’s Q1 2025 results underscore its financial strength despite near-term challenges. The company reported $5.71 billion in revenue, a 10% year-over-year increase, with Digital Media ARR (Annual Recurring Revenue) reaching $17.63 billion (+12.6% YoY). While its stock dipped 14% post-earnings due to cautious Q2 guidance, analysts emphasize that Adobe’s long-term trajectory remains robust.

Morgan Stanley analyst Keith Weiss maintains a "Buy" rating with a $510 price target, arguing that Adobe’s undervaluation relative to its mid-teens EPS growth potential presents a compelling opportunity. Meanwhile, RBC Capital lowered its price target to $480 but retained an "Outperform" rating, citing margin expansion and AI-driven innovation as growth catalysts.

Challenges and Risks

Adobe’s AR ambitions are not without hurdles. Key risks include:
1. Competitive Pressures: Rivals like Microsoft (with Mixed Reality) and Apple (via ARKit and Vision Pro) are aggressively expanding their AR ecosystems.
2. Market Volatility: Adobe’s stock has underperformed in 2025, falling 16.6% year-to-date as investors grapple with macroeconomic uncertainty and competition in AI tools.
3. Execution Risks: Delivering on its upcoming Firefly video model and expanding AR integration across Creative Cloud will be critical to sustaining growth.

Conclusion: A Long-Term Play in a High-Growth Sector

Adobe’s strategic focus on AR and AI, coupled with its entrenched position in creative and enterprise software, makes it a top-tier AR stock for 2025, particularly for investors with a long-term horizon. While short-term volatility persists, the company’s $23.30–23.55 billion FY2025 revenue target and institutional backing (117 hedge funds) suggest resilience in a growing market.

The 42.36% CAGR of the AR market and Adobe’s $125 million+ AI revenue stream further reinforce its potential. While risks like hardware competition and execution challenges exist, Adobe’s leadership in user-friendly AR tools and its AI-first innovation pipeline position it to capitalize on a $248 billion opportunity by 2029. For investors willing to look beyond near-term headwinds, Adobe remains a compelling bet in the AR revolution.

In short, Adobe’s blend of technological innovation, institutional confidence, and scalable platforms makes it a standout play in an industry that’s only just beginning to realize its potential.