6. Adobe Inc. (NASDAQ:ADBE)
Average Upside Potential: 22.52%
Market Cap as of September 26: $229.26 billion
Number of Hedge Fund Holders: 107
Adobe Inc. (NASDAQ:ADBE) is a global software company that provides a wide range of creative, marketing, and document management solutions. Their products are used by professionals in industries such as graphic design, photography, video editing, web development, and marketing. Adobe is known for its innovative software, strong brand recognition, and commitment to empowering creatives and businesses to achieve their goals.
Over the past 4 years, revenue has grown at a compound annual growth rate of 15.26%. AI-powered enhancements in products like Adobe Firefly have increased customer engagement and retention across Creative Cloud, Document Cloud, and Experience Cloud. Document Cloud sales reached $807 million in FQ3 2024, up 18% year-over-year, highlighting the positive impact of AI on Adobe’s operations.
However, Adobe Inc. (NASDAQ:ADBE) is facing a bit of a complex situation in the AI landscape. While AI tools are becoming more accessible and affordable, posing a potential threat to the company, it is also investing heavily in AI-powered solutions to enhance its product offerings. Its ability to leverage AI effectively will determine its future success.
Overall revenue in FQ3 2024 was $5.41 billion, up 10.59% year-over-year. The Digital Media segment increased by 12%, and net new Digital Media ARR reached $504 million, primarily contributed by Creative and Document Cloud. The Digital Experience segment also grew 12%. The earnings per share in this period were $4.65.
Through its $25 billion share repurchase program, which is ongoing until 2028, Adobe Inc. (NASDAQ:ADBE) has reduced its outstanding shares by 10%. The company has a market share of over 80% in the graphic design industry due to its years of product development. It is well-positioned to benefit from the growing graphic design software market. With a strong focus on AI integration and a large total addressable market, the company is expected to continue growing at a healthy rate.
Polen Global Growth Strategy stated the following regarding Adobe Inc. (NASDAQ:ADBE) in its Q2 2024 investor letter:
“With Adobe Inc. (NASDAQ:ADBE), in some ways, we see it as a microcosm of the market’s “shoot first, ask questions later” approach to categorizing AI winners and losers. In the early part of last year, Adobe came under pressure with a perception that generative AI (GenAI) would represent a material headwind to their suite of creative offerings. In short order, the company introduced its GenAI offering, Firefly, which shifted the narrative to Adobe as a beneficiary with a real opportunity to monetize GenAI in the near term. Earlier this year, that narrative was again challenged as the company reported a slight slowdown in revenue growth. Results in the most recent quarter were robust as the company raised its full-year forecast across a number of key metrics and showcased better-than-expected results.”
