Adobe on Tuesday added software tools that let its customers use artificial intelligence to create images based on its library of stock images, while still paying the original creators of those images.
Adobe is a leader in creative software with impressive growth in sales and net income, driven by innovative AI products like Adobe Firefly. The company's AI advancements, such as AI Assistant in Acrobat and Reader, are transforming user experiences and driving significant engagement and growth. Despite increasing competition, Adobe's high margins, cash flow, and undervaluation at 23.6x forward ...
Adobe has been able to rapidly embed Gen AI features into its products, which are getting a lot of traction. It has also been able to generate more sales but these are progressing gradually, as it reshapes its product portfolio in a market that has been disrupted. Adobe's inability to hike pricing hints that the competition is strong while it has lost the first-mover advantage in image creation.
At present, Adobe's AI growth drivers, margin stability, and reasonable price tag combine into a compelling package for investors. Competition is a risk consideration, especially following the Figma deal's collapse. That said, Adobe's strong fundamentals, distribution advantages, and strategic positioning justify an upgrade to a positive rating.
I upgraded Adobe to a "buy" with a $518 price target, driven by strong GenAI adoption and early signs of revenue acceleration. Despite Q4 guidance missing expectations, Adobe's RPO growth indicates potential revenue acceleration which could improve investor sentiment in the coming quarters. Adobe's Digital Media and Experience segments show robust growth, with significant contributions from Cre...
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