AI applications have emerged as the "leader": Adobe!

Powerful AI capabilities revive growth prospects, Adobe may see performance realization!

This week, software technology giant Adobe held its annual creative conference, Adobe MAX, where it announced a series of new AI tools and services. In discussions with analysts, Adobe expressed that the fourth quarter will be a very strong quarter.

Specifically, Adobe showcased AI video editing technology called Project Fast Fill, which allows users to delete, add objects, or change background elements in seconds simply by inputting text prompts, reducing a significant amount of tedious work. In addition, Adobe introduced three new generative AI models, providing comprehensive upgrades to its image editing capabilities. The newly released Firefly Vector combines Adobe's vector graphics with generative AI expertise, making it the world's first generative AI model for vector graphics.

Analysts cheered for these features, with Jefferies analyst Brent Thill praising it as "the fastest pace of innovation we've seen in 20 years." Wolfe Research analyst Alex Zukin stated in a report to clients that Adobe is transforming its entire product line into AI-native products. Mark Moerdler from Bernstein pointed out that Adobe's AI tools can save users "hours of repetitive and tedious work."

Adobe's software, such as Photoshop and Lightroom, has always been essential tools for many creative professionals. Since the rise of generative AI, Adobe has been continuously developing and optimizing its AI capabilities, taking a leading position in implementing AI business models. Adobe's stock price has risen over 62% since the beginning of this year, surpassing AI leaders like Microsoft.

Will Adobe see the realization of its performance?

Unlike other tech companies' more speculative AI visions, Adobe benefits from some of the clearest use cases that are likely to be welcomed by its user base. The key now is to attract enough customers while not eroding Adobe's profit margin, as Adobe has the highest profit margin in the software industry.

Although this year's hype around tech stocks has played a role in boosting momentum, generative AI is still largely an unproven business concept. Apart from chip manufacturers like NVIDIA providing necessary components for these services, AI itself has not yet had a significant financial impact. Microsoft told investors in its last earnings call that the performance contribution of AI services such as Copilot chatbot will be "progressive." Adobe announced that its fourth quarter earnings report, which will be released in December, will include forecasts for the next fiscal year. This is expected to reflect the anticipated performance of its new AI services to some extent. Wall Street currently predicts a revenue growth of around 12%, which is 2 percentage points higher than this year's forecast.

Analysts also predict that despite the high cost of AI services, Adobe's adjusted operating profit margin will remain above 45%. Adobe's CFO, Daniel Durn, stated on Tuesday that they expect to achieve a stable and sustained operating profit margin within this investment cycle.