We recently published a list of 10 Best AI Stocks to Buy According to Carolina Panthers Owner Billionaire David Tepper. Since Adobe Inc. (NASDAQ:ADBE) ranks 8th on the list, it deserves a deeper look.
Billionaire David Tepper stands out amongst American hedge fund managers for his two recent moves: his bet on Chinese stocks despite their volatility and underperformance and his early arrival at the AI party.
David Tepper’s passion for investing goes all the way back to his high-school days. He once recalled:
“I remember my dad had made some small investments in a few companies, so I would track them and see how he was doing.”
Tepper bought his first stock when he was in high school — 100 shares of a $2 stock, “but then the whole thing went bankrupt,” he said.
“It was a bad investment, but that didn’t deter me.”
Today, Tepper is worth about $20 billion. He was piling into AI stocks when they were just getting started. This wasn’t a fluke or a one-off success from the billionaire. Data from Bloomberg shows that Tepper has posted annualized returns of 28% for investors, before fees. In 2022, when markets were tumbling amid inflation storm and rising interest rates, Appaloosa returned 12.5%. Tepper’s instincts and grip over financial markets were strong even when he was in his late 20s and 30s, raking in huge profits for Goldman Sachs, which he’d joined in 1985.
Tepper rose to fame at Goldman when his portfolio stood out in the midst of the market crash of 1987.
According to The Alpha Masters: Unlocking the Genius of the World’s Top Hedge Funds, written by Maneet Ahuja, Tepper recalled:
“Going into the crash I had set up my entire portfolio as just short—I had no long positions. I made a fortune during and after the crash,” he says with a chuckle. “It was very cool.” Unfortunately, the rest of the firm didn’t do as well. “I still got a raise but not as much as I should have.”
Tepper’s fund Appaloosa Management has released its latest holdings data and it’s time to see which AI stocks are in the billionaire’s portfolio. 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 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Adobe Inc (NASDAQ:ADBE)
Billionaire David Tepper’s Stake: $199,994,400
Adobe has crushed all market fears around generative AI potentially denting the demand for company products. Some believed the rise of generative AI tools would dampen the demand for Adobe’s tools since everyone can now just give simple text-based commands to AI to make images and edit videos. But Adobe turned the tables around and used AI to its advantage. Adobe Inc (NASDAQ:ADBE) Digital Experience segment is integrating AI tools to enhance its tools and deliver AI-driven features for automation and personalization, catering to marketers, advertisers, ad agencies, publishers, and business executives. Through Adobe Experience Cloud, it offers solutions for B2B marketing and content creation.
A new addition to this segment is Adobe GenStudio, a generative AI product designed for marketing. It creates AI-generated images and supports content planning and management. Despite its content creation features, Adobe Inc (NASDAQ:ADBE) classified GenStudio under Digital Experience due to its primary focus on marketing applications.
After the Q2 results more Wall Street analysts think Adobe is in a position to use the generative AI revolution to its advantage. For the third quarter, the company expects $5.38 billion in revenue for Q3, marking a 12.1% year-over-year growth and signaling sequential acceleration.
Growth at Adobe Inc (NASDAQ:ADBE) is aided by AI products like Firefly, which has not only attracted new users but also boosted retention rates.
JPMorgan has upgraded Adobe Inc (NASDAQ:ADBE) to Overweight from Neutral and raised its price target to $580 from $570. Analysts believe the stock has significant upside potential and is poised to recover to its previous highs, potentially outperforming the broader market. They think current investor concerns, particularly around the Firefly product, might be overblown, and that monetization could start to improve in the latter half of this year and into the next.
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.”
Overall, Adobe Inc. (NASDAQ:ADBE) ranks 8th on Insider Monkey’s list titled 10 Best AI Stocks to Buy According to Carolina Panthers Owner Billionaire David Tepper. While we acknowledge the potential of Adobe Inc. (NASDAQ:ADBE), our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an 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.