Adobe (NASDAQ: ADBE), the content creation company famous for its Photoshop and Acrobat products, is making a hard push into artificial intelligence.
So far the stock market isn’t giving the company much credit for that. The stock has tumbled 36% over the past 12 months, despite buoyant earnings. Sales surged 11% to $5.87 billion in the fiscal second quarter ended May 30, beating the average analyst forecast of $5.8 billion. Adjusted profit came in at $5.06 per share, easily beating analysts’ prediction of $4.98.
Profit and sales forecasts for the rest of the year also topped analysts’ projections. Adobe reported recurring annual revenue of $125 million in the first fiscal quarter for standalone and add-on AI functions. It predicted that number will double by year-end.
The heart of Adobe’s AI offering is Firefly, a family of generative AI models, that can be applied in Creative Cloud applications like Photoshop, Illustrator, and Premiere Pro. Firefly allows users to create images, videos, audio, and vector graphics from text prompts, as well as edit existing content using generative AI.
In addition, Adobe Acrobat and Acrobat Reader sport an AI Assistant that scans PDFs, answers questions, and generates summaries. In February, Adobe launched separate subscriptions for its AI video generator, competing with OpenAI and Runway, which have similar tools.
Sluggish monetization
Some analysts say Adobe’s monetization of AI is too slow. It faces intense competition for AI in the content creation space. AI startups like Stability AI and Midjourney are powerful players. Then there are competitors utilizing advanced AI models, such as Google’s and OpenAI, in platforms similar to Adobe.
The development of AI tools is lowering the entry barriers for companies that would like to challenge Adobe. So it’s an open question how much Adobe can benefit from AI, and second quarter numbers seem discouraging.
AI prowess seen as underrated
But other experts say Adobe hasn’t received enough credit for offering AI throughout its products. Adobe has connected generative AI tools through its products, including Photoshop. The pessimists don’t understand Adobe’s technology, the optimists say.
Meanwhile, Adobe bears cite last week’s explosive initial public offering of Adobe competitor Figma. It now has a market capitalization of $59 billion, or almost three times the $20 billion Adobe had agreed to pay for Figma three years ago. Opposition from European regulators scuttled the deal.
But some analysts say a strong Figma doesn’t mean trouble for Adobe. There is plenty of room for two thriving players in this growing market, they contend.
Adobe has proven its might when it comes to content creation. And it’s in a good place to benefit from the increase of that creation, and the company’s ability to incorporate AI, the optimists say.
Looking more broadly, experts are arguing how much companies throughout the economy will benefit from AI, and that debate is going strong over Adobe.
Comments