The stock market has been rallying for the past year and a half or so, with the bull market’s foundation built on the hottest trend – AI. Based on the huge and initially shocking demand for its best-in-class AI chips, Nvidia has spearheaded this advance. However, for investors looking for other AI plays, the chip behemoth is not the only choice on offer.
Following Adobe’s (NASDAQ:ADBE) recent fiscal first-quarter results (February quarter) and guide, concerns were raised about the software giant’s ability to keep up in this new Gen AI-defined paradigm with worries the company’s offerings could become obsolete.
However, following its recent Adobe Summit in Las Vegas, D.A. Davidson analyst Gil Luria thinks those concerns can be laid to rest.
“Over 11K people were in attendance at the event, up 10% Y/Y and sentiment was net positive regarding Adobe’s current offerings and additional capabilities slated to go live later this year,” the 5-star analyst said. “Additionally, we came away incrementally more positive about ADBE’s AI monetization strategy over the intermediate and long term.”
A little more than a year ago, Adobe introduced Firefly, its AI image creation tool, which has since evolved into a wider range of GenAI models. Since its introduction, Adobe has incorporated Firefly’s features into its main applications, thereby empowering marketers to generate content more efficiently. At the event, the company unveiled the incorporation of structural and style reference templates, enabling users to “ground prompt-based content generation on existing images.”
While that is a fine addition, and advantageous for workflows, Luria thinks its significance will be completely overshadowed later this year when Adobe launches new 3D, audio, and video models, which hold immense “potential value” for creatives. “While monetization is an ongoing point of contention between ADBE and investors, we view commentary around pricing (credit based consumption model), longer term seat expansion opportunities, and potential incremental revenue streams as sufficient ammunition to refute the bear case scenario that GenAI is a net negative for the company,” the analyst went on to say.
In fact, highlighting the opportunity to capitalize on the “exponential growth” of content being created with GenAI, the company updated its TAM (total addressable market) figures. While the 2024 TAM was reckoned to be ~$205 billion, Adobe offered updated TAM figures for 2027; due to GenAI monetization, “product innovation to help brand achieve personalization at scale, and a higher number of users due to increased accessibility to marketing workflows,” over the next 3 years, the TAM is expected to show a CAGR (compound annual growth rate) of 12.6%.
While Luria is one of a select group of analysts thinking AI giant Nvidia is by now overvalued (he is one of only 2 Street analysts with Hold ratings), that is certainly not his take when considering ADBE’s prospects. Here, Luria rates the stock a Buy rating along with a $685 price target, implying ~37% in the months ahead. (To watch Luria’s track record, click here)
Overall, ADBE stock claims a Moderate Buy consensus rating from the analyst community, based on a mix of 22 Buy recommendations, 6 Holds and 3 Sells. There are also decent gains projected here; going by the $620.63 average target, a year from now, investors will be sitting on returns of 24%. (See Adobe stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
