Adobe (ADBE) shares jumped higher Wednesday after analysts at BMO Capital Markets boosted their rating on the cloud and software group, citing the potential boost from AI-related technologies.
BMO Capital Markets analyst Keith Bachman lifted his rating on Adobe to 'outperform' from 'market perform', while adding $70 to his price target, which now sits at $570 per share, following last week's stronger-than-expected second quarter earnings.
CEO Shantanu Narayen boosted the group's full-year profit forecast as well, citing the impact of AI-related technologies embedded in its creative cloud products, with full-year sales forecast in the region of $19.3 billion. Earnings, Adobe said, would rise to between $15.65 and $15.75 per share, a 15 cents per share improvement at the higher end from its prior estimate.
Bachman, while noting that efficiency gains from AI can ultimately reduce the number of products sold as 'seats', or the number of potential users at a particular customer decreases, still sees around $1.8 billion in recurring revenue gains for Adobe as it rolls out advances in Creative Cloud and Adobe Express.
He added that "professionals indicate they would be more willing to pay for generative AI solutions compared with students/freelancers, though still half of the students/freelancers responses said they would pay more for generative AI solutions," a condition that should support near-term sales.
"One of our key assumptions in upgrading the stock is that new users and price/mix will more than offset generative AI efficiency gains, which may include seat pressure," said Bachman. "The initial controlled and limited beta Firefly availability has generated interest from millions of users even while still in early stages, including from a large percentage of non-Creative Cloud users, which is supportive of our thesis."
Adobe shares were marked 1.53% higher in pre-market trading to indicate an opening bell price of $493.50 each, a move that would extend the stock's year-to-date gain to around 46.6%.
The stock hit an all-time high of $518.74 each last week after Adobe said revenue for the three months ending in April rose 9.8% from last year to $4.82 billion, topping Street forecasts and posted an adjusted bottom line of $3.91 per share which handily beat analysts' estimates.
Revenues from the group's Digital Media segment were up 10% from last year at $3.51 billion, while Digital Experience revenues were up 12% at $1.22 billion. Net new annualized recurring revenue from Digital media was $470 million.
