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Adobe ADBE shares have declined 10.9% year to date (YTD), reflecting the negative impact of stiff competition in the AI and Generative AI (GenAI) space from the likes of Microsoft MSFT-backed OpenAI, as well as a lack of monetization of its AI solutions. The company’s new AI book of business (more than $125 million exiting first-quarter fiscal 2025) was a roughly low single-digit percentage of total revenues ($4.23 billion in the fiscal first quarter). ADBE expects this AI book of business to double by the end of fiscal 2025.
However, Adobe’s AI business is minuscule compared with the likes of Microsoft, Alphabet GOOGL and Synopsis SNPS. Microsoft’s Intelligent Cloud revenues are benefiting from growth in Azure AI services and a rise in AI Copilot business. Alphabet’s Google Cloud is benefiting from accelerated growth across AI infrastructure, enterprise AI platform Vertex and strong adoption of Gen AI solutions. Synopsys' penetration into new and growing AI chip companies is a major growth driver.
In terms of share price performance, Microsoft and Synopsis outperformed Adobe, while Alphabet lagged YTD. Shares of Microsoft and Synopsis have declined 7.3% and 8%, respectively, while Alphabet has dropped 14.3%. Over the trailing 12-month period, Alphabet has returned 7.5%, while Microsoft and Synopsis shares fell 7.1% and 21.9%, respectively. Adobe shares have fallen 21.5% over the same timeframe.
ADBE Stock’s Performance
Image Source: Zacks Investment Research
Adobe stock is not so cheap, as the Value Score of D suggests a stretched valuation at this moment.
In terms of the forward 12-month price/sales, ADBE is trading at 7.12X, higher than the sector’s 5.72X.
Price/Sales Ratio (F12M)
Image Source: Zacks Investment Research
So, what should investors do with Adobe stock? Let’s find out.
Can Adobe’s Strong Portfolio Help the Stock Recover?
Adobe has expanded its AI portfolio with Adobe GenStudio and Firefly Services, which helps brands and their agency partners collaborate on marketing campaigns. ADBE is set to launch the most comprehensive set of web, mobile and desktop applications, delivered through various subscription tiers for creative professionals and creators.
Adobe plans to monetize standalone subscriptions for Firefly through the introduction of multiple Creative Cloud offerings that include Firefly tiering. Adobe plans to invest in its sales capacity to deliver Adobe-wide offerings across business, education and government. The integration of AI Assistant in Acrobat, Reader and Express bodes well for Adobe’s prospects.
ADBE is infusing Generative AI innovations across its portfolio, including AI-first standalone and add-on products such as Acrobat AI Assistant, Firefly App and Services and GenStudio for Performance Marketing. These factors are expected to boost top-line growth.