Adobe Systems (ADBE)

Their Figma deal still needs approval. Generative AI here is a second-half 2023 or 2024 story. Shares have probably have gotten ahead of themselves, but Adobe increased prices of a lot of their Cloud products while spending has been resilient. He'd wait for earnings, because shares could move sharply either way. They report tomorrow.

Upgraded today because of the AI tailwind. This will be one of the winners in AI. Glad to own it. Capital expenditure will be strong and consistent in AI.

Very strong business with low capital requirements.
Excellent creative suite for users.
Recent M&A worries not a long term concern.
Recent price drop a good time to buy.
A.I. will only enhance business.

Figma deal got nixed, but ADBE is still one of the best pure plays out there when it comes to generative AI. Price target of $440. Earnings always beat on top and bottom, and they raise guidance.

Since Nvidia went ballistic on May 25, through June 2 Apple shares have climbed 5%, Microsoft 6% and Adobe nearly 17%. (NVDA itself soared 30% and counting.) Adobe already positioned itself as an AI stock in Generative AI back in March when it announced Generative AI functionality with Firefly that will make it easier and faster for Adobe users to use the company’s publishing tools, such as swapping background images and marketing text. Before that in 2022, the company announced new AI and machine learning features in its marketing and analytics software package, Experience Cloud. The market is banking on the new AI features to generate more revenues from Adobe’s subscribers. Read Top 3 AI Stocks for our full analysis.

It has done well because it is a leader in AI. The March report had good top and bottom line results and increased guidance. He trimmed some today because it is getting close to his price target.

It peaked in late 2021 around $700 then fell to $275. It's $380 now. The market hated their Figma purchase but that's integrating now while Adobe is cutting costs as sales come back. Adobe software is mission-critical. Shares are attractive.

Figma deal semi-alive. If Figma doesn't come through, still have Firefly. Decent run. Really likes it. Pick it up in thirds at $375, 355, and 335.

Its user base of several hundred million makes this the perfect place for AI functionality to create value. They're partnering with Nvidia to build a new set of generative-AI models that can be used by Adobe customers of creators and markets. For instance, this can generate images and text effects without any manual editing requiring very little time.

Since then, Adobe has been a show-me stock. Last week, the company showed big by delivering blow-out top- and bottom-line beats and raising its full-year forecast. For Q1-2023, EPS came in at $3.80, beating the expected $3.68. Likewise, sales of $4.66 billion beat $4.62 billion, a quarterly record, despite a strong USD. Earnings climbed 13%. Adobe raised its forecasted adjusted EPS for 2023 from $15.15 – 15.45 to $15.30 – 15.60 while Wall Street guided $15.29. Also, Adobe bought back five million shares in the quarter, and predicted 9% earnings growth for 2023. Read Adobe and Algonquin Power: Out of the Penalty Box? for our full analysis.

It is a great business selling subscription software. It had 13% revenue growth in its last report. Trades at 25X earnings with a great balance sheet and gross margins of 90%. It is trying to make an expensive acquisition but this shouldn't affect the stock. It is very undervalued and should double earnings over the next few years.    Buy 20  Hold 21  Sell 0

After the bell today, they reported a major sales and earnings beat, and raised full-year forecast a lot. Will their numbers get the attention they deserve, up against the Credit Suisse meltown today? Adobe shares are up from its September lows, but still way down from its 2021 highs. They may be showing secular growth following a tough period. Their innovations drive their growth engine.

It has been under pressure due to a $20 billion acquisition which could be blocked. It is a phenomenal company with great free cash flow and trading at 20X earnings.

They report Wednesday. The government is trying to block a merger that Adobe feels will make it more competitive. Also, Adobe could face a challenge from ChatGPT technology that could create problems for copyright holders, who are big users of Adobe. Listen to Adobe's earnings call next week.

Subscription based. Accretive technology. Around 90% market share in the space. Figma purchase caused stock to fall. PE in high 20s. Now $11 EPS in 2023, expects $18-19 EPS by mid-decade. Closely aligned with AI. Huge, bright future. No dividend.