Adobe Stock Surges 15% as Customers Pay Up for Generative AI Services
Adobe’s stock price surged 15% after the company reported revenue and profit figures that surpassed investor expectations.
This significant rally marks the company’s most substantial increase since March 2020. The growth can be attributed to robust expansion across Adobe’s Creative Cloud, Document Cloud, and Experience Cloud, as well as its progress with generative AI.
CEO Shantanu Narayen highlighted the value of Adobe’s AI-infused products, stating that they are making applications more affordable, easy to onboard, and providing higher value uses. The company’s Digital Media segment, which includes Creative Cloud subscriptions, grew 11% to $3.91 billion in revenue. Adobe has infused AI into many of these products by training Firefly, a collection of generative AI models, on over nine billion proprietary images.
Customers are willing to pay for AI, with more people moving to higher-priced, higher-value plans due to Firefly capabilities. The AI-infused services are cutting the cost of marketing campaigns, accelerating their time to market, and expanding the amount of content that can be created to personalize campaigns.
Adobe raised its forecasts for Digital Media and Digital Experience, with Digital Media net new annual recurring revenue expected to reach $1.95 billion and Digital Experience subscription revenue expected to rise to about $4.8 billion.
Analysts expressed mixed views, with some concerned about the challenging economic environment and increased competition in design software, while others were impressed with Adobe’s integration of AI functionality across its product portfolio.
The significant increase in Adobe’s stock was partly due to negative sentiment, with one analyst suggesting that the huge pop in shares illustrates just how negative sentiment had become. If the company continues to beat and raise expectations, investors could benefit from selling shares in declining software companies and buying Adobe stock.
