Analyst Optimistic About Adobe’s Success with AI Integration and Growing Partnerships

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BMO Capital Markets analyst Keith Bachman has reaffirmed an Outperform rating on Adobe Inc. (ADBE) while increasing the price target to $670 from $645.

Bachman highlights Adobe’s dominance in its core product categories: Creative Cloud, Document Cloud, and Experience Cloud. He sees Adobe’s focus on artificial intelligence (AI) and Adobe Express as avenues for securing new Annual Recurring Revenue (ARR) and fostering growth.

The analyst, after engaging with Adobe’s senior leadership, anticipates that Adobe, along with Microsoft Corporation (MSFT), will benefit significantly from generative AI through FY24.

He notes that Adobe won’t commence charging for generative credits until the beginning of CY24, with revenue recognition occurring in ARR. In the long term, Bachman believes Adobe can transition free users to paid status and elevate paid users to higher tiers when credit limits are reached.

Bachman suggests that Adobe’s generative credit strategy will evolve over time, especially as diverse types of media are produced. Additionally, Adobe is expected to collaborate with enterprises to establish a credit pool system within enterprise agreements, with potential adjustments to pricing structures in the future.

While the analyst underscores that generative credits will drive revenue growth over the medium to longer term, he acknowledges that it may not have an immediate impact. Other catalysts for Adobe include expanding partnerships with major tech players, margin upside, and the unfolding potential of AI.

As of the latest check on Friday, ADBE shares were trading 2.95% higher at $594.81.