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Adobe (NASDAQ:ADBE) shares were in focus on Friday after the creative software giant reported mixed fiscal first-quarter results and guidance, resulting in some of Wall Street expressing concern about the company’s ability to make money from artificial intelligence in the short-term.
Shares fell 11% in premarket trading.
“While the monetization ramp is slower than anticipated, Firefly is one of the mostly widely used generative AI offerings, with potential for multiple paths to monetization (Firefly and others) later this year and over the longer term,” Bank of America analysts led by Brad Sills wrote in an investor note.
Adobe is still seen as an “early AI beneficiary,” though the analysts conceded it will take more time to ramp up monetization than first thought. They lowered their price target to $640 from $700 due to slow ramp, but reiterated their Buy rating.
Others expressed near-term concern about Adobe’s position in AI, particularly as it relates to the competition.
“AI is a true double-edged sword for Adobe, representing their only non-linear growth opportunity, but also enabling nimble competitors to potentially take share in individual product segments,” Third Bridge analyst Charlie Miner said.
Looking a little further out, Miner said Adobe is likely to benefit over the next six to twelve months as CIOs “continue to emphasize they would prefer to leverage AI from existing vendors to optimize workflows.”
It was reported earlier this week that Adobe has run into issues related to inaccurate racial and ethnic descriptions with its generative AI tool, Firefly. Other tech companies, such as Google (GOOG) (GOOGL) and Microsoft (MSFT), have run into similar issues.
Stay the course
Despite some concerns about generating revenue from AI in the short and medium-terms, some Wall Street firms are still positive on their view of Adobe, with Mizuho Securities recommending investors “stay the course.”
“Mizuho believes ADBE remains very well positioned to benefit from digital transformation with its highly comprehensive end-to-end offering,” analyst Gregg Moskowitz wrote in an investor note. “Mizuho also remains very confident Firefly and Express will be significant growth drivers. As a result, Mizuho recommends investors stay the course.”
Moskowitz reiterated his Buy rating and $680 price target on Adobe, adding the stock is one of the firm’s top picks for 2024.
BMO Capital analyst Keith Bachmann expressed some concern about the lack of a boost to the company’s full-year guidance, though he added the current valuation is “compelling and encouraging,” citing the fact that Creative net new annual recurring revenue grew by more than 20%, outside of the price hike.
Bachmann kept his Outperform rating on Adobe but lowered his price target to $610 from $660 following the results.
