Buy Adobe Stock as GenAI-Fueled Rally Hits New Highs, Analyst Says

Artificial intelligence (AI) has moved beyond jargon to become groundbreaking. From Apple’s (AAPL) recent entry into the AI ​​arena to the growing influence of generative AI in software development, automotive, healthcare, and finance, the technology is changing the way industries innovate and operate.

Software company Adobe Inc. (ADBE) has embraced this revolutionary technology, integrating genAI into its Creative Cloud, Document Cloud and Experience Cloud platforms to enhance creativity, automate workflows and increase efficiency.

Recognizing the potential of Adobe’s genAI, brokerage firm Deutsche Bank (DB) has named the software stock a top pick on its Q3 “Fresh Money” list. Analyst Brad Zelnick predicts new 52-week highs for ADBE as the company continues to monetize genAI and expand its product offerings. Here’s why ADBE stock could be an attractive pick for investors looking for growth in this niche.

About Adobe Stock

Adobe Inc. (ADBE), headquartered in San Jose and founded in 1982, is a powerhouse of creative and multimedia software. Known for its core products, including Creative Suite, Document Cloud, and Digital Marketing Solutions, Adobe has enhanced these tools with cutting-edge AI capabilities. The company has a market capitalization of $250.3 billion, solidifying its position as a technology leader.

Adobe’s groundbreaking generative AI, powered by Adobe Sensei, is transforming digital experiences. Creativity and productivity are supercharged with tools like GenStudio and AI Assistant. These innovations automate content creation, simplify workflows in Photoshop and Acrobat, and streamline tasks for users.

Adobe stock is up 13.7% over the past 52 weeks, although it’s down 5.4% in 2024. The company’s stock is working to close a YTD deficit, with ADBE up about 24% in June alone — including a 14.5% gain on Friday, June 14, following the release of Q2 results.

ADBE’s current share price is 31.09x forward earnings and 13.21x sales, which is slightly below the average historical multiples over the past 5 years.

Adobe beats second-quarter earnings estimates

On June 13, Adobe reported financial results for its fiscal second quarter that not only beat Wall Street forecasts on both the top and bottom lines, but also beat its own internal forecasts. Revenue of $5.3 billion increased 10.2% year over year, while non-GAAP earnings per share of $4.48 increased 14.6% year over year.

Digital Media revenue increased 11% year over year to $3.9 billion, with Creative revenue of $3.1 billion, up 10%, and Document Cloud revenue up 19% to $782 million. New Digital Media net ARR totaled $487 million, ending the quarter with Digital Media ARR of $16.25 billion, including $13.1 billion for Creative ARR and $3.15 billion for Document Cloud ARR. Digital Experience revenue increased 9% to $1.3 billion, while Digital Experience subscription revenue increased 13% to $1.2 billion.

GenAI revolutionizes Adobe’s product landscape

The strategic integration of AI into Adobe products has been a key driver of its recent success. The company’s generative AI model, Firefly, launched in March 2023, has revolutionized creativity across Adobe platforms, generating over 9 billion images. In addition to Creative Cloud, Firefly enhances Document Cloud and other apps, driving user updates and demonstrating Adobe’s AI-driven innovation and early monetization strategy.

Adobe has also leveraged genAI technology beyond Firefly across its product portfolio. The company launched Adobe Express as an AI-first app, revolutionizing web and mobile experiences. In March, it released a new Adobe Express mobile app for Android and iOS in beta with Adobe Firefly GenAI and new mobile editing capabilities, enabling faster creation of standout content directly from creative ideas.

In Document Cloud, Acrobat AI Assistant increases document productivity by summarizing, extracting insights, and creating presentations from PDFs. Additionally, Adobe Experience Platform (AEP) AI Assistant increases marketing productivity through generative AI.

During the Q2 earnings call, Adobe Digital Experience President Anil Chakravarthy highlighted AEP’s trajectory to a billion-dollar native app business. Adobe’s AI integration across Creative Cloud, Document Cloud, and Experience Cloud drives customer value and operational efficiency.

For Q3, management expects total revenue in the range of $5.33 billion to $5.38 billion, with Digital Media segment forecasting $3.95 billion to $3.98 billion and non-GAAP EPS in the range of $4.50 billion to $4.55 billion. Looking ahead to fiscal 2024, they forecast revenue in the range of $21.4 billion to $21.5 billion, with Digital Media segment revenue in the range of $15.80 billion to $15.85 billion. Non-GAAP EPS in the range of $18.20 billion to $18.

Analysts following Adobe predict the company’s GAAP earnings will reach $14.69 per share in fiscal 2024, up 14.8% year over year, and then increase another 13.3% to $16.64 per share in fiscal 2025.

What do analysts expect from Adobe Stock?

Last week, Deutsche Bank renewed its Q3 “Fresh Money” list, placing Adobe among analysts’ top picks. Analyst Brad Zelnick highlighted Adobe’s successful monetization of genAI, a factor that initially raised concerns earlier in the year.

In particular, Zelnick noted strong adoption of Creative Cloud with premium AI features among enterprise customers, as well as improved conversion of free users to paid services. Zelnick believes Adobe is strategically positioned in an AI-driven world, particularly with Firefly AI, which he believes could expand the company’s total addressable market by simplifying and accelerating content creation. He wrote, “Adobe seems well-positioned to carry its momentum” into the second half of the year.

Zelnick gave ADBE shares a “Buy” rating and set a $650 price target, suggesting expectations for the stock to hit new 52-week highs.

Overall, Adobe stock has a consensus rating of “Moderate Buy.” Of the 31 analysts covering the stock, 22 recommend a “Strong Buy,” one advises a “Moderate Buy,” six suggest a “Hold,” and the remaining two assign a “Strong Sell” rating.

The average price target of $612.60 suggests upside potential of just 8.5% from current price levels. Adobe’s highest price target of $730 means the stock could rise as much as 29.3%.

On the date of publication, Sristi Suman Jayaswal did not hold (directly or indirectly) a position in any of the securities mentioned in this article. All information and data in this article is for informational purposes only. For further information, please refer to Barchart’s Disclosure Policy here.