The Best of Breed of the Second Tier
Though without the pedigree of tech blue blood such as Apple or Microsoft, Adobe (ADBE) comes close and is at the top end of that second group in Silicon Valley.
Investors need to take notice immediately of ADBE.
They don’t compete on the data center level with Microsoft or Google, but they do have room to expand in their own way through artificial intelligence which offers a wide path to a higher stock price in the short and long term.
ADBE mainly creates artist tools via software that in the future will absorb a big dose of generative artificial intelligence which will make it easier to produce more creative content in minimal time.
It’s safe to say that the chutzpah surrounding generative artificial intelligence (AI) has also overflowed into Adobe.
Ride on the bandwagon while it lasts. This year is turning into a year many will not forget.
It’s true that ADBE’s foray into AI promises to be just the tip of the iceberg in harnessing this powerful set of revenue boosters.
Adobe's Photoshop Generative Fill feature lets users edit and enhance images by just typing in the desired outcome and letting the software perform its magic easily and effortlessly.
Adobe intends to roll this feature out officially in the second half of this year through its new Firefly beta app. Its Illustrator software will also integrate Firefly to enable customers to come up with ideas faster, enhancing the creative process and saving many hours of work.
ADBE has also shown stable earnings growth albeit nothing spectacular.
Revenue came in at $4.8 billion, up 10% year over year for the quarter, while net income stood at $1.3 billion, up nearly 10% year over year.
Free cash flow for the quarter came in at $2 billion, 5.4% higher than the $1.9 billion reported in the prior year.
One big highlight is the profitability of what ADBE does.
Earnings per share are expected to be between $11.15 for the next quarter.
On a down note, ADBE may encounter a stumbling block in its bid to acquire Figma, a cloud-based design platform.
Its $20 billion bid for the software company is being scrutinized by the European Union antitrust regulators. The European Commission will decide whether to clear Adobe's bid by August 7 as it was concerned that the deal may stifle competition.
There is still a great deal of upside to ADBE’s stock and I do believe it is one of the more robust franchises in software paving the way for its Creative Cloud to capitalize on the integration of generative AI functionality into existing workflows.
It’s hard to put an exact number on the level of efficiencies but I do believe artists will show around 50% increased productivity using this new software.
This would translate into multi-thousands of dollars in cost savings for individual content creators who effectively will be able to run a professional artist studio from their own iPhone.
It’s never been a better time to own a brand because to run it and promote it, is easier than ever.
This is why the stock is defying gravity this year, so I predict that ADBE shares will be a lot higher than today a year from now.
