Adobe's Stock Surges as Optimistic AI Outlook Quiets Doubters

Adobe (NASDAQ:ADBE) raised its full-year forecasts after the firm behind Photoshop delivered stronger-than-expected second-quarter figures, pushing its shares nearly 15% higher in premarket trading in California.

Adobe Improves AI Features to Attract Customers

Adobe has continued to build its AI features to attract customers, some of whom are content creators who use Adobe’s products such as Premiere Pro and After Effects. The effort contributed to exceeding Wall Street’s quarterly expectations for its net new digital media annual recurring revenue — a primary line item of $487m.

CEO Shantanu Narayen stated: “Our highly differentiated approach to [artificial intelligence] and innovative product delivery are attracting an expanding universe of customers and providing more value to existing users.”

Adobe Raises Fiscal 2024 Earnings and Revenue Projections

Adobe reported its financial results for the first quarter of fiscal year 2024, showcasing strong performance. The company achieved a revenue of $5.18 billion, marking an 11% increase year-over-year.

Adobe is now forecasting full-year earnings per share in the range of $18. 00 and $18. 20, while revenue is expected in a range of $21. 40 billion to $21. 50 billion. It had earlier predicted a per-share income of $17. 60 to $18. 00 and revenue of $21. 30 billion to $21. 50 billion for its 2024 financial year.

Let’s see how the analysts are reacting to these forecasts:

JPMorgan analysts changed their rating for Adobe from "Neutral" to "Overweight," stating:  "We see numerous product catalysts building into the [second half] and beyond."

"While the huge pop in the shares in the after-market illustrates just how negative sentiment had become, we believe that the outlook remains attractive on a risk/reward basis as adoption of [generative] AI services across Adobe's platform continues to accelerate," Materne gave positive rating to Adobe's stock, expecting it to rise to $650 as more businesses use Adobe's AI services.

Bernstein’s Mark Moerdler offered a similar view on the size of Adobe’s stock bump. He stated: “It is important to note that part of the strength in reaction is due to the fact that Adobe's stock had been down 23% [year-to-date] going into the quarter and the massively depressed multiple," he wrote. "Combined with the nervousness that had been created by some other recent software company earnings, it makes sense that the stock was up so much.”

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