Adobe’s Focus on Legally Compliant AI Models Delivers a Competitive Edge

Adobe’s strong market position in creative software, combined with its strategic AI initiatives, positions the company for sustained growth. Meanwhile, the recent stock price decline presents an attractive entry point for investors seeking exposure to a leader in the digital media and experience markets.

Here’s what we feel the market has overlooked: the firm’s focus on legally compliant AI models and tailored features for creative professionals provides a competitive edge in the rapidly evolving AI landscape.

While short-term challenges exist, the company is well positioned to capitalize on the digital transformation and AI revolution in creative software. What’s more, the stock trades at a reasonable 21.3 times the company’s forward earnings forecast, given its growth prospects.

ADOBE INC. (Nasdaq symbol ADBE; www.adobe.com) operates through three main segments: The Digital Media segment’s software includes Adobe Photoshop and Adobe InDesign; the Digital Experience segment provides analytics, social marketing, targeting, media optimization, and cross-channel campaign management software, as well as premium video delivery; and the Publishing segment produces software that lets computer users create, edit and share documents in the popular PDF format.

In Adobe’s fiscal 2024 fourth quarter, ended November 29, 2024, revenue rose 11.1%, to a record $5.61 billion from $5.05 billion a year earlier. Excluding one-time items, earnings climbed 12.6%, to $4.81 a share from $4.27.

The company also spends a high 18% of its sales on research to stay ahead of the competition. Its balance sheet is nonetheless very strong: it holds cash of $7.9 billion.

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Growth Stocks: How Adobe Firefly is revolutionizing content creation

Adobe is now incorporating AI into its products. For example, it has now launched its Firefly Video Model. This program uses AI to generate videos from text prompts. Notably, this tool has two major competitive edges.

First, facing much larger rivals, Adobe has focused on building models trained on data it has the rights for. That ensures output can be legally used in commercial work.

And to satisfy its creative user base, Adobe has placed more emphasis on adding useful AI editing features. The Firefly Video app includes settings to toggle camera pans, the intensity of the camera’s movement, angle, and shot size. The program offers fine-grain control and has been taught the concepts that video editors and videographers use—things like camera position, camera angle, camera motion, and so on.

Given its growth prospects, the stock trades at an acceptable 21.3 times the $20.44 a share the company will probably earn for fiscal 2025.

Recommendation in Wall Street Stock Forecaster: Adobe Inc. is a buy.

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Scott Clayton

Scott is an associate editor at TSI Network. He is the lead reporter and analyst for Dividend Advisor, Power Growth Investor and Canadian Wealth Advisor and a member of the Investment Planning Committee. Scott began his investment and financial career working with Pat McKeough at The Investment Reporter in the 1980s. Subsequently, he worked at the Financial Post Corporation Service for 10 years. He joined TSI Network in 1998. He is a Bachelor of Economics graduate of York University, and he also has an M.B.A. from the Schulich School of Business.

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