AI Boom: Major Upside Potential Still Ahead

Adobe Has 25% Upside Potential on AI Boom: Morgan Stanley

Adobe is the latest company to benefit from the hype around generative artificial intelligence. Like Nvidia, the creative software maker has seen its sentiments in the market improve significantly on integrating AI features into its software offerings. Likewise, the stock has rallied by about 57% year to date as investors jostle for positions seeing it as an ideal play for gaining exposure to the revolutionary technology.

AI Boom

Morgan Stanley analyst Keith Weiss is the latest to join the fray in touting the company’s long-term prospects as it continues integrating new AI tools into its creative software offerings. The analyst believes the stock could rally by a further 25% over the next year amid the AI boom. The $660 price target by the analyst would bring the stock close to its all-time high of $688 a share.  The analyst has also upgraded the stock to overweight from an equal weight.

Adobe joins the likes of Nvidia, Microsoft, and Alphabet, which have seen their valuations and sentiments significantly boost owing to their increased focus on artificial intelligence tools and innovation. Nvidia has been the biggest winner, its share price more than tripling, and the chip giant is becoming a trillion dollar company amid the AI revolution.

Microsoft has also benefited a great deal amid its $10 billion investment in OpenAI that allowed it to gain access to ChatGPT, a tool it is using to strengthen its edge on the search business through Bing.  Alphabet has also launched its own AI-powered chatbot Bard as it looks to fend off stiff competition from Microsoft.

Adobe AI Edge

According to the Morgan Stanley analyst, Adobe’s clarity in AI-enabled products and monetization roadmap should continue to strengthen investor sentiments on the stock. Likewise, it is expected to accelerate the company’s creative cloud organic growth.  Its cloud platform has made it easy for customers to tap into cutting-edge technology, therefore, create and customize their designs.

AI integration has helped shrug off any concerns that Adobe would be left behind as other firms launch AI tools. For instance, the company’s Photoshop Generative Fill feature allows people to edit and enhance designs by simply typing in the desired outcome and letting the software do the magic.

Improving Earnings

Adobe has reaped the rewards of betting on AI tools that continue strengthening its offerings and core business. Likewise, the company has increased its full-year revenue and profit outlook, expecting the tools to draw in more business.

The creative software maker expects full-year revenue of between $19.25 billion and $19.35 billion, up from the previous year of $17.6 billion.  The expectation is high that the company’s earnings growth can return to mid or high-teen growth over the next three years.

In the second quarter, the creative software maker delivered record revenues amid strong demand across all the key cloud products. Revenue was up 10% year over year to $4.8 billion as net income increased 10% to $1.3 billion.  Free cash flow increased 5.4% to $1.9 billion.

Even as Adobe continues to strengthen its competitive edge around artificial intelligence, it has encountered a stumbling block in its bid to acquire Figma. The $20 billion bid hangs in the balance amid European regulatory scrutiny by the European Union antitrust authorities.

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