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Adobe ADBE shares have jumped 19% in a month, reflecting its deepening Generative AI (Gen AI) focus and innovative Gen AI-powered portfolio. A pause in tariffs that reduced macroeconomic uncertainty also helped the stock. However, Adobe’s near-term prospects remain challenging given stiff competition in the AI and GenAI space from the likes of Microsoft MSFT-backed OpenAI, as well as a lack of monetization of its AI solutions.
Adobe’s AI business is minuscule compared with the likes of Microsoft and Alphabet GOOGL. 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.
Stiff competition has negatively impacted Adobe shares, which have underperformed peers like Microsoft and document services & e-signature provider DocuSign DOCU over the past month, but outperformed Alphabet. Microsoft, DocuSign and Alphabet shares returned 24.9%, 20.9% and 8.2%, respectively, over the same timeframe. The challenging near-term prospect is expected to remain an overhang on the Adobe shares.
ADBE Stock’s Performance
Image Source: Zacks Investment Research
Adobe shares are also overvalued, as suggested by a Value Score of D.
ADBE stock is trading at a premium with a forward 12-month price/sales of 7.28X compared with the broader Zacks Computer and Technology sector’s 6.14X, Salesforce’s 6.61X, DocuSign’s 5.69X and Alphabet’s 5.90X.
Price/Sales Ratio (F12M)
Image Source: Zacks Investment Research
So, what should investors do with Adobe shares right now? Let’s dig deep to find out.
Can Adobe’s Innovative Portfolio Boost Prospects?
Adobe has expanded its AI portfolio with Adobe GenStudio and Firefly Services, which help brands and their agency partners collaborate on marketing campaigns. Adobe launched Firefly Video Model-powered Generative Extend in Premiere Pro, which leverages AI to instantly generate and expand the length of video and audio clips. Adobe introduced a new version of After Effects with a high-performance preview playback engine, powerful new 3D motion design tools and HDR monitoring. New Frame.io V4 upgrades include expanded storage that scales with teams.
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 Gen 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.