Key Takeaways

• Adobe shares tumbled Friday amid concerns about the software maker's weaker-than-expected outlook.

• However, analysts were bullish on the stock, saying the company's projection was likely conservative, expecting it could benefit from artificial intelligence.

• They suggested subscription upgrades to access Firefly, Adobe's family of generative AI models, will be a key metric to watch.
  

Adobe (ADBE) shares plunged nearly 9% Friday amid concerns about its weaker-than-expected outlook, but analysts were bullish on the stock, suggesting the company's projections were conservative and that it could get a boost from artificial intelligence (AI) demand.

Adobe’s Digital Media arm, which includes Creative Cloud subscriptions, brought in record net-new annualized recurring revenue (ARR) for the third quarter, but missed analysts' estimates for fourth-quarter guidance. Jefferies analysts said they suspect Adobe's outlook "could be very conservative," citing strong tailwinds from pricing and AI monetization.

The analysts said fiscal 2025 “could be the year of AI monetization" for Adobe, noting that the company is “already seeing some monetization, though early, as new users buy higher-priced plans, existing users upgrade, enterprises buy Firefly Services, and new products such as Acrobat AI Assistant get adopted.”

Adobe's 'Firefly' Takes Flight

Upgrades by Adobe Creative Cloud subscribers to access Firefly, the company's family of generative AI models, will be a key performance indicator to watch, Bank of America analysts said.

“It is notable that Adobe is driving meaningful AI generation and running training and inferencing on large scale Firefly models, while delivering healthy margin expansion,” the analysts said, adding that it “also speaks to the advanced nature of Firefly models, relative to competing [large language models].”

Nearly three-quarters or 11 of the 15 of the analysts covering Adobe tracked by Visible Alpha held a "buy" or equivalent rating for the stock as of Friday. Their average price target of $620.86 would imply over 15% upside from Friday's closing price of $536.87.

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