Adobe gains as Deutsche Bank adds to Fresh Money list on AI opportunity

Adobe (NASDAQ:ADBE) rose more than 1% on Tuesday as Deutsche Bank added the creative software maker to its Fresh Money list, citing its recent better-than-expected quarterly results.

“Creative Cloud Net New [annual recurring revenue] is expected to grow in [the second-half] following two quarters of declines, with pricing headwinds inverting, new products becoming generally available, and contributions from gen AI ramping,” analysts at the firm wrote. “We believe this creates an opportunity to see positive estimate revisions along with multiple expansion as the narrative flips to Adobe once again a gen AI beneficiary.”

Deutsche Bank has a Buy rating and $650 price target on Adobe.

In addition to the strong earnings and generative AI opportunity, Adobe has already had some success in monetizing AI, whereas other software companies have not or had trouble, Deutsche Bank said.

Enterprise customers are “embracing” the AI-infused versions of Creative Cloud, while free-to-paid products are converting at better rates and AI is driving better engagement and retention.

“We hear of Adobe’s success with enterprise customers echoed in conversations with CIOs, noting price uplift on renewal as they adopt Creative Cloud with Firefly to drive greater content velocity and ideation within creative teams as well as greater personalization,” the investment firm added.

Additionally, Adobe should see a return to growth in the second-half for creative net new annual recurring revenue, due in large part to the general availability of new products and enterprise adoption of its generative AI tool, Firefly, rises as more customers renew.

“With many businesses operating in a content-constrained world, Adobe’s generative AI offering, Firefly, could both help to grow and unlock [total addressable market], making content creation more approachable and faster than ever,” the analysts wrote. “Continued productivity enhancements from generative AI and users outgrowing freemium offerings should continue to support ARPU growth in the future.”