At a cursory glance, software giant Adobe (NASDAQ:ADBE) – perhaps best known for its Photoshop program – might not be the most outwardly exciting play on artificial intelligence (AI). However, its burgeoning AI relevancies for the creative industry may continue to augment Adobe’s rally, which has been impressive this year. As a result, I am bullish on ADBE stock.
ADBE Stock Potentially Stands to Benefit from Generative AI
Prior to generative AI – or the leveraging of digital intelligence protocols and algorithms to create new content – Adobe utterly dominated the broader creative space. With programs like Photoshop, users could manipulate graphics, sparking numerous elements of artistic expression. However, one major obstacle stood in the way of the creative industry — time.
Anyone who has ever attempted to manually edit their photos through Photoshop knows how cumbersome and frustrating the process can be. Indeed, the frustrations don’t just exclusively focus on complex endeavors, such as isolating specific objects from the underlying environment. Even efforts to make images dynamically “pop” present huge challenges.
However, with generative AI and related intelligence-imbued protocols, creatives can accelerate processes that took hours. However, as TipRanks contributor Joey Frenette mentioned, this framework also leaves ADBE stock vulnerable to disruption. Put another way, with generative AI becoming more prominent, smaller, nimbler competitors can chip away at Adobe’s market share.
Still, Frenette remains overall bullish on ADBE stock because of its underlying potential. Yes, while Adobe’s AI-based art generator Firefly offers remarkable utility, the underlying space is crowded. However, the Photoshop maker can distinguish itself with its partnership with Alphabet (NASDAQ:GOOGL).
As Frenette explained, users of Alphabet’s Google Bard chatbot “will be able to unlock the power of Adobe Firefly and Adobe Express.” Given the enormous brand power and recognition of these two technology stalwarts, it’s not an unreasonable proposition.
Worker Discontent and the Gig Economy Beckon
For U.S.-based white-collar workers, the COVID-19 crisis imposed a yo-yo effect. At first, the start of the global health crisis carried an almost-apocalyptic implication. However, workers cynically embraced the crisis as rather than layoffs, it translated to the ability to work from home. Still, with the crisis fading, many employers started to reverse their remote operations policy, leading to much discontent.
With many top-level organizations recalling their employees back to the office – mostly to run hybrid schedules – several impacted individuals collectively broadcasted their anger and frustration. That’s understandable, given that working from home is exponentially more convenient for workers. However, companies are unlikely to be compassionate given the rise of “time theft” incidents.
Against this backdrop, ADBE stock may rise because of the associated positive implications for the gig economy. Basically, the work-from-home protocol operates very much like the gig economy, with gig workers (independent contractors) setting up shop anywhere. From the living room to the coffee shop, freelancers enjoy a wide range.
Of course, it’s this very breadth that major corporations want to crack down on because of the lack of uniformity. However, with many expressing their displeasure at being recalled, the gig economy may organically entice the affected.
Also, with the creative segment arguably offering more personal fulfillment rather than assessing numbers on a spreadsheet, Adobe’s total addressable market may expand. In turn, this setup should be good news for ADBE stock.
The Financials Present a Reassuring Profile
In all fairness, the smaller generative AI stocks offer a much more exciting backdrop. However, if you’re looking for a reassuring financial profile rather than a platform to spike one’s blood pressure, ADBE stock represents the more sensible choice.
For example, in Adobe’s quarter ending May 2023, it posted revenue of $4.82 billion, up nearly 10% from the year-ago tally of $4.39 billion. On an annual basis, Adobe continues to perform impressively throughout the new normal. In the fiscal year ended November 2020, the company generated $12.87 billion in sales. The next year, it expanded the top line to $15.8 billion and then to $17.6 billion in Fiscal Year 2022.
On a trailing-12-month basis, Adobe is looking at sales of $18.43 billion. Further, the company is consistently profitable and readily generates positive free cash flow. Therefore, investors should just let Adobe “cook,” as the kids like to say.
Is ADBE Stock a Buy, According to Analysts?
Turning to Wall Street, ADBE stock has a Moderate Buy consensus rating based on 16 Buys, 11 Holds, and one Sell rating. The average ADBE stock price target is $542.94, implying 11.9% upside potential.
Also, on TipRanks, ADBE stock has a 9 out of 10 Smart Score rating. This indicates strong potential for the stock to outperform the broader market.
The Takeaway: Adobe is a Trustworthy AI Company
While the advent of generative AI may present some competition concerns for Adobe, the tech giant’s brand power and key partnerships will be difficult to displace. Further, it can leverage the underlying innovation with its vast resources and networks. Combined with the company’s financial prowess, Adobe is a trustworthy AI company.
