Shares of Adobe (ADBE) are falling after the software company’s fourth quarter forecast disappointed investors looking for returns on their AI investments. The company, known for its suite of creative programs, topped fiscal third earnings estimates. Wolfe Research managing director and head of software research Alex Zukin joins Morning Brief to dig into the earnings report and how the company stands out among a heated competition. Zukin argues that the investor response to Adobe’s fourth quarter outlook is an “overreaction”: “I think there are some timing some elements where a few deals that were expected to close in Q4 closed toward the end of Q3. I think if you look back at last year, the guidance for the second half is exactly the same as the guidance was last year. And I think that ultimately, the company will execute and you’re going to start to see Adobe as one of the best ways to monetize AI investments… in the enterprise segment.” Zukin expects accelerating growth and improving margins from Adobe moving forward, and despite the weak fourth quarter guidance, he notes that nothing has changed about Adobe’s fundamentals. He explains that for AI investments to start generating the profit investors are looking for, Adobe’s digital media business needs to see the biggest impact. “I think that they have a number of different levers to do that with generative credits within the portfolio of Photoshop, Illustrator. I think some of the new launches and innovations are going to be releasing at MAX [Adobe’s annual conference] around the video model. I think that that’s a pivotal moment to unlock some of that incremental monetization in the enterprise,” he tells Yahoo Finance. Zukin believes that while all enterprise software companies are “relatively early” in their generative AI journeys, Adobe is much further along: “I would put them almost right behind Microsoft (MSFT) in their ability to actually show real disruptive ROI (return on investment) to those companies where they can understand how adopting generative functionality within their creative workflow really can increase content velocity and content generation capabilities at a much lower price point than they’re used to.
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