Add Adobe (ADBE) to the list of stocks that have caught a bid on the strong AI-driven momentum. Adobe stock has surged more than 42% over the past month, besting the 6% rise in the S&P 500 index. Already up 9% this week alone, Adobe has surged 42% year to date, while the S&P 500 index has risen 14%.
The digital cloud giant giant is set to report second quarter fiscal 2023 earnings results after the closing bell Thursday. Adobe shares have skyrocketed amid the AI-driven power surge in technology stocks. And there’s more gains to come, according to Wells Fargo Securities Michael Turrin. Citing generative AI tailwinds, the analyst upgraded Adobe stock to Overweight and boosted Adobe’s 12-month price target from $375 to $525.
From current levels of $454, that new price target assumes gains of more than 15%. “The AI debate continues to drive ADBE,” Turrin wrote in a research note. “[Generative] AI is a tailwind to ADBE as we expect much of the early value to accrue to established platforms and see potential for further break-out as products are monetized.” This past week, Adobe introduced Sensei GenAI, a generative AI tool, which it made available across Adobe Experience Cloud applications for enterprises.
Wells Fargo sees Adobe as well-positioned to benefit from early enterprise adoption given its content specialties. Also, unlike other AI rivals, Adobe is attempting to differentiate its AI by focusing on four key areas: data, scale, talent, and a comprehensive portfolio. The management is taking the strategic approach to the position the company for long-term success. While the stock is no longer cheap, Adobe’s new leadership position in AI could keep the shares from crashing.
For the quarter that ended May, Wall Street expect the San Jose, Calif.-based company to earn $3.79 per share on revenue of $4.77 billion. This compares to the year-ago quarter when earnings came to $3.35 per share on revenue of $4.39 billion. For the full year, ending in November, earnings are expected to rise 12% year over year to $15.50 per share, while full-year revenue of $19.3 billion would climb 9.6 % year over year.
Thanks to its diversified software offering, Adobe extracts roughly 90% of its revenue from subscription products, namely its two main operating segments: Digital Media and Digital Experience. The latter segment, accounting for more than 70% of its total revenues, remains the driving force behind Adobe’s growth trajectory. However, the company’s ambitions in in the realm of generative AI has gotten investors excited. To enhance its product offerings and augment the user experience, the company has introduced features like Firefly and Generative Fill.
In an effort to expands Firefly’s reach and potential for increased user engagement, Adobe has also partnered with Google’s (GOOG , GOOGL) Bard. Firefly will enhance and showcase text-to-image capabilities within Bard, which will enable users to speak their creative ideas using their own words and generate Firefly images directly within Bard. It will be a while before any of these ideas boost the bottom line. In the meantime, the company’s core business will remain the breadwinner. To date, Adobe continues to execute.
When Adobe reported its Q1 results on March 16, shares jumped close 6% after the company beat on both the top and bottom lines, reporting a 13% jump in quarterly profit, while Q1 revenue rose 9% to $4.66 billion. Adobe recorded revenue of $3.4 billion in the company’s Digital Media segment, which includes Creative Cloud.
The company continues to benefit from strong new user adoption and subscription revenue. On Thursday the market will want to see whether Adobe can build on these strong numbers and whether the company’s AI ambitions can bear fruit.
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