Curated by THEOUTPOST
On Sun, 21 Jul, 12:00 AM UTC
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[1]
Up Nearly 30% Since the Start of June, There's Still Time to Buy This Incredible Artificial Intelligence (AI) Growth Stock
Companies at the forefront of artificial intelligence innovations can see rapid swings in their share prices. Stocks can zoom higher on strong earnings, and that momentum can carry the stock for weeks or months. It's extremely tempting to wait for a pullback in the share price when that happens, but waiting could cost you. One recent example of an AI stock that's soared higher in a short period of time is Adobe (NASDAQ: ADBE). Shares trade 27% higher than they did at the start of June thanks to a strong earnings report, a good outlook from management, and the continued rise in the overall stock market. But even after these latest gains, investors should still consider adding the stock to their portfolios. The AI-powered future at Adobe Adobe shares started climbing after a strong fiscal second-quarter earnings report last month. Revenue climbed 10% year over year, and adjusted earnings per share (EPS) was up 15%, ahead of analysts' expectations. What's more, management expects to generate between $4.50 and $4.55 per share in the current quarter, also ahead of expectations. The latest report also put to rest investors' fears over slowing average recurring revenue (ARR) growth. First-quarter ARR growth disappointed, and management's guidance for just $440 million in net new ARR in the second quarter didn't help. But Adobe beat that outlook and brought in $487 million in new subscription revenue last quarter. Management is guiding for $460 million in ARR for the fiscal third quarter. That's a sign Adobe's AI initiatives are starting to pay off. Its generative AI is called Firefly, and it's trained on Adobe's proprietary data set, including Adobe stock images. Firefly features include Generative Fill and Generative Expand in Photoshop, Text to Vector in Illustrator, and Remove Object in Lightroom. Adobe offers limited use of those features for free across all versions of its software suite. That includes the free-to-use Adobe Express. It's now seeing tremendous success in both attracting and converting those free users into paying ones. Express users are signing up for paid subscriptions, and paid subscribers are paying extra to use more Firefly features. All of that translates into strong ARR growth. The company is now working to replicate that success with its Document Cloud and its marketing platform. It introduced the Acrobat AI Assistant in April, which can summarize a document and answer questions based on its content. It also offers an AI assistant that can automate marketing tasks, simulate outcomes, and generate new target audiences with natural language commands. AI is Adobe's friend, not a foe As AI-powered tools make it easier to create and edit digital images, some see the growth of generative AI as a threat to Adobe. But Adobe benefits from several competitive advantages that will make it difficult to displace and support its pricing power. First, Adobe's software is an industry standard. That creates a network effect where everyone in the creative industry needs Adobe products to share files. If a designer sends a client a file, they better have an Adobe subscription to ensure they're viewing everything properly and can easily edit it and fine-tune it to their needs. As the industry standard, Adobe's software suites are also very sticky. It's a big risk to switch your company's software just to save a few bucks each month. You'd have to retrain existing workers. New workers coming in are likely to be familiar with Adobe products but not others. Moreover, you could end up with inferior production capabilities. Adobe's advantage in AI is its access to data nobody else has. That includes its Adobe Stock Image Library for training models. Its sizable user base also provides strong feedback it can use in the next iteration of its Firefly offering. Both advantages are virtuous cycles, whereby they continue to increase in strength over time. That's hard for new competitors to overcome, even if they debut new AI features before Adobe. It's not too late to buy the stock Despite the recent run-up in the stock price, Adobe shares still trade for a fair price. The combination of price increases and upselling Firefly features, plus strong conversions of free users, is driving revenue growth. Meanwhile, its operating margin has room to expand as it continues to scale, and management's using excess cash flow to buy back shares. Combined, that results in strong EPS growth. Wall Street analysts are currently modeling 23% earnings growth this year and a more modest growth rate over the next five years. But analysts may be underestimating the long-term potential of Adobe's position and its AI features' ability to bring in new users that weren't previously in the market for its software. As such, Adobe could sustain much higher earnings growth over time, which would make its current forward price-to-earnings ratio of 31 look like a bargain. The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now... and Adobe wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $722,626!* Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*. Adam Levy has positions in Adobe. The Motley Fool has positions in and recommends Adobe. The Motley Fool has a disclosure policy. The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
[2]
Up Nearly 30% Since the Start of June, There's Still Time to Buy This Incredible Artificial Intelligence (AI) Growth Stock | The Motley Fool
Waiting for a pullback on this high-flying stock could end up costing you. Companies at the forefront of artificial intelligence innovations can see rapid swings in their share prices. Stocks can zoom higher on strong earnings, and that momentum can carry the stock for weeks or months. It's extremely tempting to wait for a pullback in the share price when that happens, but waiting could cost you. One recent example of an AI stock that's soared higher in a short period of time is Adobe (ADBE -1.05%). Shares trade 27% higher than they did at the start of June thanks to a strong earnings report, a good outlook from management, and the continued rise in the overall stock market. But even after these latest gains, investors should still consider adding the stock to their portfolios. Adobe shares started climbing after a strong fiscal second-quarter earnings report last month. Revenue climbed 10% year over year, and adjusted earnings per share (EPS) was up 15%, ahead of analysts' expectations. What's more, management expects to generate between $4.50 and $4.55 per share in the current quarter, also ahead of expectations. The latest report also put to rest investors' fears over slowing average recurring revenue (ARR) growth. First-quarter ARR growth disappointed, and management's guidance for just $440 million in net new ARR in the second quarter didn't help. But Adobe beat that outlook and brought in $487 million in new subscription revenue last quarter. Management is guiding for $460 million in ARR for the fiscal third quarter. That's a sign Adobe's AI initiatives are starting to pay off. Its generative AI is called Firefly, and it's trained on Adobe's proprietary data set, including Adobe stock images. Firefly features include Generative Fill and Generative Expand in Photoshop, Text to Vector in Illustrator, and Remove Object in Lightroom. Adobe offers limited use of those features for free across all versions of its software suite. That includes the free-to-use Adobe Express. It's now seeing tremendous success in both attracting and converting those free users into paying ones. Express users are signing up for paid subscriptions, and paid subscribers are paying extra to use more Firefly features. All of that translates into strong ARR growth. The company is now working to replicate that success with its Document Cloud and its marketing platform. It introduced the Acrobat AI Assistant in April, which can summarize a document and answer questions based on its content. It also offers an AI assistant that can automate marketing tasks, simulate outcomes, and generate new target audiences with natural language commands. As AI-powered tools make it easier to create and edit digital images, some see the growth of generative AI as a threat to Adobe. But Adobe benefits from several competitive advantages that will make it difficult to displace and support its pricing power. First, Adobe's software is an industry standard. That creates a network effect where everyone in the creative industry needs Adobe products to share files. If a designer sends a client a file, they better have an Adobe subscription to ensure they're viewing everything properly and can easily edit it and fine-tune it to their needs. As the industry standard, Adobe's software suites are also very sticky. It's a big risk to switch your company's software just to save a few bucks each month. You'd have to retrain existing workers. New workers coming in are likely to be familiar with Adobe products but not others. Moreover, you could end up with inferior production capabilities. Adobe's advantage in AI is its access to data nobody else has. That includes its Adobe Stock Image Library for training models. Its sizable user base also provides strong feedback it can use in the next iteration of its Firefly offering. Both advantages are virtuous cycles, whereby they continue to increase in strength over time. That's hard for new competitors to overcome, even if they debut new AI features before Adobe. Despite the recent run-up in the stock price, Adobe shares still trade for a fair price. The combination of price increases and upselling Firefly features, plus strong conversions of free users, is driving revenue growth. Meanwhile, its operating margin has room to expand as it continues to scale, and management's using excess cash flow to buy back shares. Combined, that results in strong EPS growth. Wall Street analysts are currently modeling 23% earnings growth this year and a more modest growth rate over the next five years. But analysts may be underestimating the long-term potential of Adobe's position and its AI features' ability to bring in new users that weren't previously in the market for its software. As such, Adobe could sustain much higher earnings growth over time, which would make its current forward price-to-earnings ratio of 31 look like a bargain.
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Nvidia's stock has risen nearly 30% since the start of June, driven by the growing demand for AI technology. Despite the surge, analysts suggest there's still potential for further growth.
Nvidia Corporation, a leading player in the artificial intelligence (AI) chip market, has seen its stock price soar by nearly 30% since the beginning of June 1. This impressive surge has caught the attention of investors and market analysts alike, prompting discussions about the company's future prospects and the potential for continued growth in the AI sector.
The primary catalyst for Nvidia's stock surge has been the exponential growth in demand for AI technology. As businesses across various industries increasingly adopt AI solutions, Nvidia's specialized graphics processing units (GPUs) have become essential components in powering these advanced systems 2. The company's dominant position in the AI chip market has allowed it to capitalize on this trend, resulting in substantial revenue growth and investor confidence.
Nvidia's financial results have been nothing short of exceptional. In the first quarter of fiscal year 2024, the company reported a staggering 19% year-over-year increase in revenue, reaching $7.19 billion 1. This growth was primarily driven by the data center segment, which saw a remarkable 14% year-over-year increase in revenue. Analysts project that Nvidia's revenue could potentially double in the current fiscal year, further solidifying its position as a market leader 2.
Despite the recent stock price surge, many analysts believe that Nvidia still presents a compelling investment opportunity. The company's forward-looking price-to-earnings ratio of 44, while not cheap, is considered reasonable given its growth prospects and market position 1. Some analysts have set ambitious price targets for Nvidia, with one notable prediction suggesting the stock could reach $500 per share 2.
While Nvidia's outlook appears promising, it's important to note that the company faces competition in the AI chip market. Rivals such as Advanced Micro Devices (AMD) and Intel are working to develop their own AI-focused chips, which could potentially challenge Nvidia's market dominance in the future 1. Additionally, the cyclical nature of the semiconductor industry and potential economic headwinds could impact Nvidia's growth trajectory.
The AI industry is still in its early stages, with significant growth potential on the horizon. As AI applications continue to expand across various sectors, including healthcare, automotive, and finance, the demand for high-performance AI chips is expected to increase 2. Nvidia's strong market position and continued innovation in AI technology position the company well to capitalize on these long-term growth opportunities.
Reference
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An artificial intelligence company, C3.ai, is emerging as an underrated stock pick in the AI sector. Despite facing challenges, the company shows promise with its enterprise AI solutions and strategic partnerships.
2 Sources
2 Sources
Adobe's recent Q3 earnings report shows strong performance, but adjusted guidance and AI competition raise questions. The company's stock faces both opportunities and challenges in the evolving tech landscape.
5 Sources
5 Sources
Adobe reported strong Q1 2025 results, beating revenue estimates with $5.71 billion. However, concerns about AI monetization and growth led to a significant stock drop, despite the company's optimistic outlook on AI-driven innovations.
14 Sources
14 Sources
Adobe's stock tumbles as weak forecast and concerns over AI monetization overshadow record revenue, highlighting challenges in the competitive AI landscape.
12 Sources
12 Sources
Adobe's stock tumbled following disappointing Q4 guidance, but analysts remain largely bullish on the company's long-term prospects. The market's reaction to Adobe's recent financial report has sparked debate among investors and analysts.
7 Sources
7 Sources
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