We recently published a list of Jim Cramer’s Top 10 Must-Watch Stocks for Savvy Investors. In this article, we are going to take a look at where Adobe Inc. (NASDAQ:ADBE) stands against Jim Cramer’s must-watch stocks for savvy investors.
Friday Madness
In a recent episode of Mad Money, Jim Cramer described September 6, Friday, as a dismal trading day following a critical non-farm payrolls report. Bulls hoped for weaker-than-expected hiring and steady wages to prompt the Federal Reserve to consider cutting rates. They got what they wished for, but this led to a surprising turn of events: instead of rallying, the market saw a sharp decline, with the Dow falling 410 points, the S&P dropping 1.73%, and the NASDAQ plummeting 2.55%.
“What an ugly day. Just hideous. We came into today knowing we’d have a critical non-farm payrolls report. If you were a bull, you wanted to see weaker-than-expected hiring with wages pretty much in line, because that’s what the Fed needs to see before it can start cutting rates. Voila, we got exactly what we wished for. Maybe we should have been careful, though, because as soon as we got what we wanted, the bulls vanished and the sellers came out of the woodwork, crushing practically everything. The Dow fell 410 points, the S&P plunged 1.73%, and the NASDAQ plummeted 2.55%.”
Cramer noted that September often brings significant profit-taking, making it historically the weakest month for the market. While this might seem like circular reasoning, it’s more plausible than suggesting that fear of a severe economic slowdown drives the sell-off. In fact, big tech companies, which are central to ongoing powerful trends like data centers and accelerated computing, should be seen as buying opportunities during market dips.
“This market has a September problem. Come September, we’re always hit with a tremendous amount of profit-taking, which is why it’s the weakest month of the year. I know that’s somewhat circular reasoning—we sell because we’ve always sold—but it makes more sense than saying people sold tech because they fear a hard landing. Tech, especially big tech, is something you buy, not sell, into weakness if you’re worried about a more severe slowdown.
Why? Well, because big tech is all about powerful secular themes that can keep going even during a recession—and we’re not getting one. I’m talking about the data center, accelerated computing—they’re not going anywhere. Nevertheless, when anything jars the big tech themes of the moment, the market’s reaction is swift, harsh, and horrible.”
Jim Cramer discussed the aftermath of NVIDIA’s recent report, noting that despite his belief that AI is not a bubble, the stocks related to AI have seen substantial gains, particularly in August. He pointed out that September often triggers increased selling, even when companies report results that meet expectations.
“Look at what happened after the company reported last night. I don’t believe AI is a bubble, but these stocks are still up a great deal, especially in August. And September tends to bring out sellers when you get just in-line numbers.”
The Upcoming Debate Between Harris and Trump
Jim Cramer also commented on the upcoming debate between Vice President Harris and former President Trump, scheduled for Tuesday night. He questioned how much the economy will be a focus, speculating that Trump might try to link Harris to recent inflation trends, while Harris may present herself as a more moderate alternative to President Biden.
“Tuesday night’s the great debate between Vice President Harris and former President Trump. I don’t know how much of a role the economy will play in the debate. If Trump’s on his game, he’ll try to tie Harris to the inflation we’ve experienced since COVID. I suspect that Harris will try to portray herself as more moderate than President Biden.
Either way, I doubt there’ll be anything specifically market-moving, even if the candidates say something newsworthy about their tax plans. Keep in mind that the winner in November likely won’t have the Senate votes to totally rework the tax code, whether we’re talking about Harris’s capital gains tax or Trump’s 19th-century-style tariffs.”
Jim Cramer Urges Investors: “Please Do Not Give Up the Ship Here”
Then he discussed the upcoming release of the Consumer Price Index (CPI) on Wednesday, which will provide another update on inflation. He emphasized that if inflation remains steady or decreases, the Federal Reserve will have more flexibility to lower interest rates and potentially avoid a recession, addressing concerns from many sellers. Cramer urged investors to stay confident and not to abandon their positions based on these uncertainties.
“Wednesday, we get another read on inflation—this time from the Consumer Price Index. What can I say? As long as inflation stays the same or goes lower, the Fed has plenty of leeway to cut interest rates and prevent a recession—the thing so many sellers are worried about. That’s why I keep telling you, please do not give up the ship here.”
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Adobe Inc. (NASDAQ:ADBE)
Number of Hedge Fund Investors: 107
Jim Cramer notes that Adobe Inc. (NASDAQ:ADBE) will report its earnings after the market closes. He points out that three positive analyst reports before this quarter’s results are a strong bullish signal. However, Cramer acknowledges that Adobe Inc. (NASDAQ:ADBE)’s status as a tech company with an AI component has introduced some skepticism, making it face more scrutiny than usual. Despite this, he believes that the aggressive promotion by analysts suggests a positive outcome for Adobe Inc. (NASDAQ:ADBE), making it an appealing prospect for investors.
“Adobe Inc. (NASDAQ:ADBE) reports after the close. We’ve had three positive analyst notes ahead of this quarter, which is extremely bullish. Against that, of course, is the fact that Adobe is a tech company with an AI component, which is now suddenly “guilty until proven innocent”—a complication to an otherwise magnificent story. That said, I sense this should be a good result for the bulls, given that the analysts are promoting it so aggressively ahead of the quarter.”
Adobe Inc. (NASDAQ:ADBE) is a strong investment opportunity due to its solid financial performance, diverse product lineup, and strategic focus on AI and cloud services. In Q2 fiscal 2024, Adobe Inc. (NASDAQ:ADBE) reported record revenue of $5.31 billion, up 10% from the previous year. This growth was driven by strong performances in its Creative Cloud, Document Cloud, and Experience Cloud, with the Digital Media segment increasing by 11% and Document Cloud by 19%.
A major growth factor for Adobe Inc. (NASDAQ:ADBE) is its early adoption of AI technology. Its AI-powered tools, which boost productivity in Creative and Document Cloud services, are gaining popularity. Adobe Inc. (NASDAQ:ADBE)’s confidence in its future is clear from its raised targets for fiscal 2024, highlighting strong subscription growth and a growing customer base for its AI solutions.
Adobe Inc. (NASDAQ:ADBE)’s financial health is robust, with $1.94 billion in cash flow from operations and a notable share repurchase of 4.6 million shares, demonstrating its solid liquidity and commitment to returning value to shareholders. Adobe Inc. (NASDAQ:ADBE) expects Q3 2024 revenue between $5.33 billion and $5.38 billion, setting the stage for continued growth.
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 ADBE ranks 2nd on our list of Jim Cramer’s must-watch stocks for savvy investors. While we acknowledge the potential of ADBE as an investment, our conviction lies in the belief that under the radar 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.