Adobe's prospects are more constructive under the blessing of AI, and Wall Street banks have raised their price targets

As Adobe's Q2 performance exceeded market expectations and raised its full-year performance guidance, many major Wall Street banks raised their target prices on the stock. Software services giantAdobeOn Thursday, the U.S. stock market announced its second quarter financial report for fiscal year 2023 after the market closed. As Adobe's Q2 performance exceeded market expectations and raised its full-year performance guidance, many major Wall Street banks raised their target prices on the stock.

Adobe's Q2 total revenue increased by 10% year-on-year to US $4.82 billion, better than analysts' average expectation of US $4.77 billion; Adjusted earnings per share of $3.91 were better than analysts' average estimate of $3.79. In addition, Adobe raised its full-year fiscal 2023 revenue and earnings per share estimates. The company believes that generative artificial intelligence (AI) capable software will stimulate market demand for its software. The company expects total full-year revenue to be $19.25 billion to $19.35 billion (previously expected $19.2 billion), compared with analysts' expectations of $19.3 billion; Adjusted earnings per share are expected to be $15.65 to $15.75 (previously expected $15.60), compared with analysts expecting $15.50.

Adobe, long a software sales giant for creative professionals, is adding generative AI capabilities to its products. "Given our rich datasets, underlying models, and ubiquitous product interfaces, Adobe's groundbreaking innovations allow us to lead a new era of generative AI," Adobe CEO Shantanu Narayen said in a statement.

Here's what the major banks have to say about Adobe:

Barclays analyst Saket Kalia gave Adobe a "wait and see" rating and raised the target price from $485 to $540. Analysts say Adobe's share price rally stems from its pricing advantage, which is likely to be more pronounced in the second half of the year. Analysts noted that the company has ways to monetize its generative AI tool, Firefly. Furthermore, given the outlook for generative AI and the current regulatory environment, the absence of any updates on the deal to acquire Figma could be viewed as a positive.

The analysts wrote in the report: "Adobe's net new annual recurring revenue (ARR) for the digital media business is $410 million in the third quarter, and the implied expectation for the fourth quarter is about $460 million. Even without assuming that Firefly will make a performance contribution in the fourth quarter, we will think that the fourth quarter expectation seems conservative." "While we are not sure whether the performance growth can be maintained at the second quarter level by then, we think the performance guidance set by the company means that this level can be sustained."

The analyst added that Adobe has three ways to monetize its generative AI tool Firefly: using Creative co-pilot can increase average revenue per user; Increase user stickiness and improve user retention rate; Increase paying subscribers through a freemium model. "As FireFly starts to feel like a more real growth opportunity, we're starting to feel this change in sentiment, and some investors are wondering if the potential deal with Figma is really as negative as it was feared a few months ago," the analysts said.

UBS analyst Karl Keirstead maintained a "neutral" rating on Adobe and raised his target price from $440 to $525. Analysts pointed out that Adobe's overall performance in the second quarter increased, especially strong revenue and ARR growth in its core creative unit, which should help calm investor concerns. Analysts are also optimistic that the company will benefit from generative AI, although the company seems to be focused more on applications than revenue (at least in the near term).

Morgan StanleyAnalyst Keith Weiss maintained Adobe's "wait and see" rating and raised the target price from $470 to $510. Adobe's second-quarter results were "impressive," analysts said, adding that the company's guidance upgrade "shows solid execution in a tough macro environment." However, analysts also pointed out that given the uncertainty of the Figma deal, it is still open to question whether the company's revenue can re-accelerate growth.

JPMorgan ChaseAnalyst Mark Murphy maintained a "neutral" rating on Adobe and raised his target price from $450 to $490. According to analysts, Adobe's second-quarter results showed "relative resilience," with slightly higher-than-expected net new ARR guidance for the third quarter and slightly upward revisions to both total revenue and net new ARR guidance for fiscal 2023. Analysts say the company remains relatively well positioned thanks to growth that can be achieved in the near term, coupled with some macro conservatism.

Goldman SachsMaintain Adobe's "buy" rating and raise the target price from $480 to $550. Analysts at the bank said that Adobe's second-quarter earnings report announced on Thursday, coupled with recently announced products, may directly change investor narratives about artificial intelligence, and Adobe is likely to be the main beneficiary. The company's "extensive data-driven platform and product-led growth should allow it to capture this opportunity," analysts said.

In addition, Baird analyst Rob Oliver maintained Adobe's "neutral" rating and raised the target price from $370 to $500;

Mizuho analyst Gregg Moskowitz maintained Adobe's "neutral" rating and raised the target price from $450 to $520;

Piper Sandler analyst Brent Bracelin maintained Adobe's "overweight" rating and raised the target price from $500 to $572;

Stifel analyst J. Parker Lane maintains Adobe's "buy" rating and raises the target price from $400 to $550;

Bank of America analyst Brad Sills maintained a "neutral" rating on Adobe and raised the target price from $480 to $575;

Wells FargoMaintain Adobe's "overweight" rating and raise the target price from $525 to $600.