Adobe's Product Differentiation And Generative AI: Analyst Forecasts Future Growth Opportunities

BMO Capital Markets analyst Keith Bachman reiterated the Outperform rating on Adobe Inc. ADBE, with a price target of $645.

The analyst believes that Creative Cloud's competitive differentiation and growth opportunities, helped by generative AI capabilities, will be the focus at the MAX conference and analyst event.

The analyst also expects discussions on Document Cloud and Experience Cloud, which should highlight future growth opportunities, including the positive impact of generative AI.

Adobe remains reasonably valued, and shares deserve to trade at a premium to peers over the next 12 months based on improving fundamentals heading into CY24 and beyond, Bachman writes.

The analyst applauds Adobe's new products, including the Firefly web application, Express Premium, and Creative Cloud with gen AI - as this is the first wave of positive impact on growth.

Over the next few years, Bachman envisions new products being released, including more offerings around 3D and video, which will lead to more product differentiation and incremental price/mix increase opportunities.

Adobe can capture incremental growth opportunities through generative credits, but the analyst thinks Adobe does not want to limit individuals and organizations from generating AI images, particularly near term. 

Document Cloud accounts for about 14% of total Adobe revenue and about 18% of Digital Media ARR. Experience Cloud accounts for about 25% of total Adobe revenue.

For FY23, the analyst sees Adjusted EPS of $15.91, with revenues of $19.361 billion.

For FY24, the analyst sees Adjusted EPS of $17.67, with revenues of $21.482 billion.

Price Action: ADBE shares are trading higher by 2.76% to $530.68 on the last check Friday.