Adobe Inc. shares were on track for their highest close in more than a year Friday, after an analyst upgraded the stock ahead of earnings on optimism for the software company’s Firefly artificial-intelligence product.
Shares of Adobe
ADBE,
rallied as much as 6% to an intraday high of $466.59 Friday and were on track for their highest close since April 5, 2022, when shares closed at $458.58.
On Thursday, Adobe announced it planned to monetize its Firefly content-creation “co-pilot” by launching the business-scale Firefly for Enterprise sometime in the second half of 2023. In response, Wells Fargo analyst Michael Turrin upgraded Adobe’s stock on Friday and said he is “more confident [generative] AI is a tailwind to Adobe as we expect much of the early value to accrue to established platforms & see potential for further breakout as products are monetized.”
With Firefly, Adobe joined the likes of Microsoft Corp.
MSFT,
which has invested billions in OpenAI’s ChatGPT; Alphabet Inc.’s
GOOG,
GOOGL,
generative-AI product Bard and Google Cloud enterprise offerings; Meta Platforms Inc.’s
META,
eponymous Meta AI; Nvidia Corp.’s
NVDA,
own Nvidia AI; and Amazon.com Inc.’s
AMZN,
free machine-learning tools for users.
Firefly “presents a much needed next act for Adobe” and is a natural extension of the company’s entrenched position within digital media, Turrin said. He upgraded the stock to an overweight rating from equal-weight and hiked his price target to $525 from $420.
Other analysts also checked in before Adobe’s fiscal second-quarter earnings report, which is scheduled for June 15. In its previous report, Adobe hiked its outlook, and executives showed they were prepared to fight for its $20 billion acquisition of interactive-design platform Figma, which they expect to close by the end of the year.
TD Cowen analyst Derrick Wood, who has an outperform rating and raised his price target to $500 from $415, said his surveys show stability in digital media end markets, which he finds encouraging coming off a strong first quarter.
“We expect a solid beat & modest raise, and a very upbeat tone around the innovation in monetizable GenAI that is being unleashed to the market,” Wood said.
Citi Research analyst Tyler Radke, who has a neutral rating and hiked his price target to $462 from $365, warned, however, that Adobe’s upside might be limited.
While Radke said he was “incrementally positive” heading into earnings, he noted that he “would like to see more signs of sustainable strength in core [digital media] trends amidst Adobe lapping price tailwinds, ongoing Figma M&A overhang, and more confidence that Adobe’s incremental monetization of GenAI can offset increased competition.”
Of the 36 analysts who cover Adobe, 20 have buy-grade ratings and 16 have hold ratings, with an average price target of $435.66. The stock has not carried a sell-grade rating since it held one briefly in August 2021, according to FactSet data.
Adobe shares are up 36% year to date, while the tech-heavy Nasdaq Composite Index
COMP,
is up 27%, the S&P 500
SPX,
has advanced 12% and the iShares Expanded Tech-Software Sector exchange-traded fund
IGV,
has grown 29%.
This post was originally published on Market Watch
