Adobe Shares Jump On AI Success

Adobe shares rose as much as 16 percent on Friday, posting their biggest gain in more than four years after the company raised its full-year revenue forecast due to strong customer take-up of its artificial intelligence (AI)-powered tools.

Even with the gains Adobe shares remained down about 9 percent so far this year amidst investor fears that the Photoshop maker, long a dominant player in the market for image-editing software, could lose out to AI competitors such as OpenAI’s image-generation tool Dall-E.

By contrast the S&P 500 Index is up about 14 percent since the beginning of 2024.

The jump of up to 16.5 percent in early trading on Friday was the biggest intraday rise since March 2020.

Generative AI

Adobe’s stock rose 77 percent last year before slumping 23 percent to Thursday’s close.

Adobe responded to AI competition last year with its Firefly image-generation tool and senior executive David Wadhwani said existing customers were renewing with higher-priced subscription plans in order to gain access to Firefly’s capabilities.

The company said in its quarterly earnings report on Thursday that digital media net new annual recurring revenue would reach $460 million (£363m) in the current quarter, compared to an average analyst estimate of $435.2m.

Adobe expects its new creative business to continue accelerating for the rest of the fiscal year, chief financial officer Dan Durn told a conference call following the results.

Firefly has been integrated into products such as Photoshop and Illustrator and Adobe is working on a similar generative video tool for video-editing software Premiere.

Such tools can create images or video from simple text prompts and have been the focus of massive corporate and investor interest since the launch of ChatGPT in November 2022.

‘Expanding universe’

Chief executive Shantanu Narayen said Firefly had been used to generate more than 9 billion images.

Citigroup analysts noted that other enterprise application software makers have posted slowing sales and Adobe’s figures represent a “positive contrast”.

In its fiscal second quarter ended 31 May Adobe said sales rose 10 percent year-on-year to $5.31bn as innovations allowed the company to attract an “expanding universe of users”, Narayen said.

Monthly active users of Adobe Express, which competes with products such as Canva for entry-level users, more than doubled for the quarter compared to the previous quarter.

The digital media unit, which includes Adobe’s main creative and document-processing tools, showed an 11 percent year-on-year sales increase to $3.91bn.

The firm said its document cloud business added $165m of new annually recurring business in the quarter, driven by an AI-assistant feature that helps analyse PDFs and other documents, Narayen said.