Balancing Growth And Uncertainty: Analyst Projects Adobe's AI Revenue Trajectory Amid Figma Acquisition Concerns

B of A Securities analyst Brad Sills upgraded the shares of Adobe Inc. ADBE from Neutral to Buy and raised the price target from $575 to $630.

The analyst said many software firms are likely to benefit from AI as new offerings are launched in the coming years. The analyst views Adobe as an emerging AI leader.

According to the analyst, Adobe is ahead of the curve, and its AI offerings are likely to begin driving meaningful revenue/Free Cash Flow upside as soon as FY24. 

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According to the analyst, Adobe's three potential AI monetization opportunities include a paid Firefly subscription, credit packs for Firefly consumption, and custom agreements with global brands to blend data/LLMs with Adobe's.

In a conservative base case, the analyst projects AI revenue of $300 million in FY24, growing to $960 million by FY26. In contrast, in a bull case, AI revenue is estimated to be $1 billion in FY24, rising to $2.9 billion by FY26.

The analyst warns of continuing uncertainty about the timing and likelihood of the proposed Figma acquisition closing.

The analyst observed that even if the Figma deal were terminated, Adobe would continue developing features organically to better address critical collaborative features.

The new 27x C25E FCF multiple represents a premium to the GARP software group (trading at 1.3x 17% FCF growth) to reflect potential acceleration from AI, said the analyst.

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Price Action: ADBE shares are trading higher by 0.70% at $518.07 on the last check Thursday.