Analysts at Bank of America Corp (NYSE:BAC) (BoA) have upgraded Adobe Systems Incorporated (NASDAQ:ADBE) shares to ‘Buy’ from ‘Neutral’ and raised their price target on the stock on their view that the software firm could emerge as an artificial intelligence (AI) leader.
“Adobe is ahead of the curve, and we believe that AI offerings (such as generative AI-powered content creation tool Firefly) are likely to begin driving meaningful revenue/free cash flow upside as soon as FY24,” the analysts wrote in a note to clients.
The analysts estimated in a conservative base case that Adobe could generate AI revenue of $300 million in the 2024 financial year, growing to $960 million by fiscal 2026.
“In a blue-sky scenario, we arrive at AI revenue of $1 billion in FY24, growing to $2.9 billion by FY26,” they wrote.
The analysts wrote that they see three potential AI monetization opportunities for Abode, the first being a paid subscription to Firefly. The second opportunity is credit packs for Firefly consumption.
Finally, custom agreements with global brands to blend data/large language models with Adobe’s could drive AI monetization for the firm, the analysts wrote.
They also noted that Adobe would succeed in its collaboration efforts regardless of whether or not its proposed $20 billion acquisition of design platform Figma goes ahead.
While the timing and likelihood of the acquisition closing remain uncertain, the analysts noted: “Adobe remains confident that the US, European Commission, and UK regulators will approve the deal on the merits of the joint benefits to creative professionals (we agree).”
“It is clear that Adobe is already developing collaborative capabilities organically and embedding these into key offerings (e.g., multiplayer capabilities in Adobe Express),” they continued. “If the Figma deal were terminated, Adobe would continue developing features organically to better address critical collaborative features.”
The BoA analysts explained that their rating upgrade and price target increase from $575 to $630 for Adobe stock was based on the incremental growth likely to come from AI in fiscal 2024.
Adobe shares traded at $514.44 on Thursday afternoon.
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