Fueled by the momentum of artificial intelligence, Adobe (ADBE) stock has surged 44% in the past six months, ranking highly in the basket of software stocks that have enjoyed investor enthusiasm. The stock has risen 80% year to date, crushing the 19% rise in the S&P 500 index. But can its momentum continue?

This question will be answered when the digital cloud giant giant reports fourth quarter fiscal 2023 earnings results after the closing bell Wednesday. As well as the stock has performed, there’s more gains to come, according to multiple Wall Street analysts, such as JPMorgan Securities analyst Keith Weiss, who has an Overweight rating and a $660 price target on Adobe. Despite recent questions about the Q4 guidance for Digital Media revenue, adoption for Firefly, Weiss believes investors should feel “very comfortable” with the company’s ability to monetize generative artificial intelligence. 

“Bottom line, we continue to see the potential for upside to current FY24 consensus estimates across Digital Media, Digital Experience, and EPS, which should sustain momentum in ADBE shares,” Weiss wrote in an investor note. In terms of guidance for the Digital Media segment, citing the recent price increases, growth from Express and the early adoption of Firefly, Weiss expects the number to be close to $2 billion in net new revenue.

Mizuho Securities analyst Gregg Moskowitz noted Adobe’s accelerated web traffic, which he expects will boost Adobe’s digital media segment annual recurring revenue in the fourth quarter. Moskowitz also noted that the early reception to Firefly, Adobe’s generative artificial intelligence product, has been “stronger than anticipated” and could result in it being a “significant” growth driver. This supports the recent thesis that Adobe management continues to take the strategic approach to position the company for long-term success.

For the quarter that ended November, Wall Street expect the San Jose, Calif.-based company to earn $4.14 per share on revenue of $5.03 billion. This compares to the year-ago quarter when earnings came to $3.60 per share on revenue of $4.53 billion. For the full year, earnings are expected to rise 18% year over year to $15.93 per share, while full-year revenue of $19.38 billion would climb 10 % year over year.

Adobe’s foray into the realm of generative AI has investors buzzing with excitement. In their quest to elevate product offerings and enhance the user experience, Adobe has introduced game-changing features such as Firefly and Generative Fill. In a bid to expand Firefly’s horizons and unlock greater user engagement, Adobe ventured into a strategic partnership with Google’s Bard AI language model.

Firefly is poised to amplify and spotlight text-to-image capabilities within Google’s Bard, providing users the ability to articulate their creative musings in their own words and effortlessly generate Firefly images directly within Bard’s domain. Thus far, Adobe’s execution has been nothing short of stellar as evident from its third quarter results, during which it beat on both the top and bottom lines, reporting Q3 adjusted earnings of $4.10 per share which rose 20% year over year, while revenue of $4.89 billion rose 10.3% year over year.

The company achieved a record Q3 net new Digital Media average recurring revenue of $464 million, while cash flows from operations were $1.87 billion. Notably, the remaining Performance Obligations exiting the quarter were $15.72 billion. The company also raised its full-year revenue outlook, as it now expects full-year revenue to come within a range of $19.25 billion to $19.35 billion, rising from a prior range between $19.1 billion and $19.3 billion.

Adobe continues to benefit from strong new user adoption and subscription revenue. On Wednesday the market will want to see whether Adobe can build on these strong numbers and whether the company’s AI ambitions can bear fruit.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Original: Earnings Feed: Adobe (ADBE) Q4 2023 Earnings: What to Expect