Adobe Earnings: Quietly Stacking Good Quarters As AI Momentum Builds

We maintain our fair value estimate of $590 per share after wide-moat Adobe reported good first-quarter results, provided second-quarter guidance that was in line with our expectations, and reaffirmed its previously issued outlook for fiscal 2025. We left our model largely unchanged after this quarterly update. We are encouraged by recent product introductions throughout the portfolio and think Firefly leaves Adobe well-positioned in artificial intelligence. We also see monetization in the early stages. Along those lines, Adobe disclosed that AI is generating $125 million in annual recurring revenue, or ARR, which it expects to double by the end of the year. We continue to think recent price increases, product launches, and rapid generative AI adoption should help drive growth in 2025. We observe a growing disconnect between our fair value estimate and current trading levels that makes little sense with stable fundamentals and the bear case of AI obviating the need for Creative Cloud not materializing once again.