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Is Adobe’s AI Play Already Priced In?
Adobe's shares dipped on Friday despite a robust Q3 report, raising questions whether its AI rally is already priced in.
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Following an upswing on Thursday, Adobe’s shares took a downturn in today’s session, declining by more than 4% despite strong Q3 earnings fueled by the company’s artificial intelligence (AI) features. The latest stock price dip poses a question of whether Adobe’s AI success is already priced in.
Adobe Shares Tumble Despite ‘Blowout’ Third Quarter
Adobe shares tumbled 4% at the market open on Friday despite the company’s better-than-expected earnings report and upbeat guidance.
The stock witnessed a noteworthy rally a day earlier, but the share price took a downturn in extended trading even though the company beat revenue estimates for the Q3 on robust demand for its AI-powered photo and video editing toolset.
The maker of Photoshop has been making heavy investments to equip its creative software suite with generative AI capabilities – a burgeoning technology that took 2023 by storm. Notably, analysts expect these features to propel Adobe’s revenue growth in 2024 and the long term as more AI solutions get integrated into its products.
Adobe CEO Dan Durn described the latest report as a “blowout quarter,” with the company’s revenue exceeding the midpoint of its previous guidance by $40 million. Durn said strong earnings data comes even though Adobe absorbed substantial generative AI computing costs related to the rollout of Firefly – its GenAI suite. Since the feature’s launch, Adobe customers have generated 2 billion images using the AI capabilities.
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Adobe’s AI Foray May Already Be Priced In
At first glance, Adobe’s Friday stock price dip may come as a surprise to some, considering that the company smashed expectations for Q3 results thanks to the ongoing AI boom. Furthermore, it offered a strong forecast for the current quarter, expecting revenue to be in the range of $4.98 billion to $5.03 billion, while analysts projected $5 billion.
However, much of Adobe’s AI rally has already been priced in. The company’s stock is already up over 57% since the start of 2023, strongly outperforming the broader S&P 500 index, which gained 17% during that period.
Remarkably, almost all of Adobe’s stock market gains this year came in the period between now and March, which is when the company officially introduced the AI-powered Firefly. The software maker added nearly $90 billion in market cap during these 6 months, underscoring its AI efforts’ impact on the share price.
Do you think there is more potential for Adobe’s stock to rally amid the ongoing AI craze? Let us know in the comments below.
Tim Fries
Tim Fries is the cofounder of The Tokenist. He has a B. Sc. in Mechanical Engineering from the University of Michigan, and an MBA from the University of Chicago Booth School of Business. Tim served as a Senior Associate on the investment team at RW Baird's US Private Equity division, and is also the co-founder of Protective Technologies Capital, an investment firm specializing in sensing, protection and control solutions.
