We recently published a list of 10 Tech Stocks with High Upside Potential. In this article, we are going to take a look at where Adobe Inc. (NASDAQ:ADBE) stands against other tech stocks with high upside potential.
As per Forrester Research, Inc., despite persistent inflation, the US real GDP is expected to increase 2.7% in 2025 and the US tech spending is projected to see growth of 6.1% to touch a staggering $2.7 trillion. The software spending in the US is expected to increase by 10.7% in 2025. With the escalation in cybersecurity risks, companies continue to leverage cloud and GenAI technologies to fuel future growth and innovation.
AI to Drive Growth in Tech Sector in 2025
The largest US stocks, also referred to as the Magnificent 7, have seen a strong run over the previous 2 years, mainly due to the buildout of AI infrastructure, says Goldman Sachs. Sung Cho, co-head of US Fundamental Equity in Goldman Sachs Asset Management. Cho believes this buildout can significantly benefit data and security companies, and software companies successfully integrating AI in their existing product set. As the Fed continues to cut rates, the smaller tech companies – which saw contraction in their multiples because of higher rates – might see a favourable macro backdrop.
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Robust AI Investments are On the Horizon
UBS has highlighted how AI has and will continue to drive the growth of the broader technology sector. As per the firm, since the rollout of ChatGPT in November 2022, the total market capitalization of companies listed on the US technology exchange NASDAQ increased to ~US$13.5 trillion. Notably, around two-thirds of this value increase has been directly caused by the AI sector. Moving forward, the decisive factor is expected to be the extent to which significant investments in AI-based infrastructure can be translated into profitable business models.
While highlighting the consensus estimates, UBS stated that the 4 major US technology corporations are projected to invest ~US$280 billion in AI this year. Given the increased usage of this key technology across industries, value creation processes are expected to be optimized. This can lead to significant productivity gains. One such area is the market for robotics and automation, which is expected to reach a sales volume of ~US$350 billion in 2025, says UBS analysts. Notably, humanoid robotics will be the key area of particular interest because of the innovations.
Our Methodology
To list the 10 Tech Stocks with High Upside Potential, we used a screener and shortlisted the stocks catering to the broader technology sector. Next, we filtered out the stocks having an average upside potential of at least ~30%, as of February 28. Finally, the stocks were arranged in ascending order of their average upside potential. We also mentioned the hedge fund sentiments around each stock, as of Q4 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
A team of engineers and scientists collaborating at a workstation surrounded by their applications and solutions.
Adobe Inc. (NASDAQ:ADBE)
Average Upside Potential: ~34.5%
Number of Hedge Fund Holders: 117
Adobe Inc. (NASDAQ:ADBE) operates as a technology company. Barclays reiterated an “Overweight” rating on the company’s stock with the price objective of $567 after it rolled out its public video beta via new tiered offerings, Firefly Standard and Firefly Pro. The analyst believes that this is a step in the right direction. Furthermore, Barclays opines that Firefly can now be monetized as part of a Creative Cloud subscription. To give a brief context, Firefly is a suite of generative AI-powered features for creating image content. Adobe Inc. (NASDAQ:ADBE)’s Firefly platform continues to demonstrate healthy user engagement.
Through providing AI-enhanced features as premium add-ons or via tiered pricing models, Adobe Inc. (NASDAQ:ADBE) is expected to increase average revenue per user and bring new customers looking for cutting-edge creative tools. Furthermore, the integration of Firefly into Adobe Express makes it simpler for SMBs and non-designers to develop content of improved quality. This can help Adobe Inc. (NASDAQ:ADBE) penetrate the digital content creation market, such as influencers and social media marketers.
Polen Capital, an investment management company, released its Q3 2024 investor letter. Here is what the fund said:
“We added to several existing positions in the quarter including Adobe Inc. (NASDAQ:ADBE), Workday, Shopify, MSCI, and Paycom Software. We feel Adobe is poised for re-accelerating revenue and earnings growth partially due to the monetization of its Firefly GenAI product embedded in its creative software.”
Overall, ADBE ranks 7th on our list of tech stocks with high upside potential. While we acknowledge the potential of ADBE as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for a deeply undervalued AI stock that is more promising than ADBE but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.