Share prices of Adobe (ADBE 0.87%) jumped an impressive 60% so far in 2023 thanks to the company's consistently strong results. It also got a boost from investors interested in its growing focus on integrating artificial intelligence (AI) across its offerings.
The software company, which is known for popular programs like Photoshop, Acrobat, Premiere, and others, is aggressively deploying generative AI features into its media, publishing, and advertising offerings. Let's see why that could be a big deal and help Adobe stock soar higher in the long run.
Adobe can tap a massive market with its AI-focused offerings
The adoption of AI in the digital content creation space is growing rapidly. According to third-party estimates, catalysts such as AI could send the digital content creation market's annual revenue to $181 billion in 2032 compared to $19.5 billion last year. So, Adobe's already massive total addressable market (TAM) of $205 billion is set to expand even further in the long run.
The good part is that the company is on track to make the most of the AI-driven opportunity in its end market. Adobe management pointed out on the June earnings conference call that the company has "delivered hundreds of AI innovations" across its key properties such as Photoshop and Acrobat.
What's more, Adobe's generative AI platform, Firefly, is also gaining solid traction among customers. Firefly allows Adobe customers to create images using text prompts, edit and paint images, generate images from 3D elements, design flyers, create resumes, and even make Reels on Meta Platforms' Instagram. Adobe said in June that Firefly has already been used more than half a billion times for generating content by users, which is impressive considering that the service was launched only in March this year.
But this is just the beginning as commercial content creation demand is expected to rise rapidly in the future. According to a survey of 2,600 professionals from eight countries carried out by Adobe earlier this year, two-thirds of the respondents estimate that the demand for content could jump between 5x and 20x in the next couple of years. As a result, organizations will need to significantly amplify their resources to meet this growing demand, and this is where AI is likely to come into play as it could make life easier for content creators.
The company is expected to grow at a faster pace
In all, it won't be surprising to see an improvement in Adobe's growth rates in the future as the adoption of AI in content creation increases. The company anticipates revenue of $19.3 billion in the ongoing fiscal 2023, which would be an improvement of almost 10% from fiscal 2022's top line of $17.6 billion. But investors shouldn't forget that Adobe raised its guidance in June. It was earlier anticipating $15.45 per share in earnings on revenue of $19.2 billion.
Analysts anticipate that the growing influence of AI on the company's business could help it clock stronger growth in the long run. So, it isn't surprising to see why Adobe's top line is estimated to increase by teen percentages beginning in the next fiscal year.
ADBE Revenue Estimates for Current Fiscal Year data by YCharts
It is also worth noting that Adobe's earnings are expected to clock a 14% annual growth rate for the next five years. If that's indeed the case, the company's bottom line could jump to just over $30 per share after five years based on its current fiscal year's forecast of $15.70 per share in adjusted earnings.
Multiplying the projected earnings with Adobe's five-year forward earnings multiple of 35 would translate into a market cap of just over $1 trillion after five years. That would be a big jump over Adobe's current market cap of just under $250 billion. So, investors looking to buy an AI stock now can consider buying Adobe before the stock jumps higher given the solid upside it is expected to deliver in the long run.
