Adobe Rises Above Deal Cloud Thanks to AI Excitement

Adobe, the maker of Photoshop, has benefited from the hype surrounding artificial intelligence (AI), improving its public perception despite uncertainty around its potential acquisition.

In just three months, Adobe has transformed from an AI underdog to an AI champion in the eyes of investors. During its annual user conference in March, the company introduced Firefly, a powerful AI tool for generating and editing images and videos. Last month, Adobe announced a partnership with Google to incorporate Firefly into Bard, an AI-based offering similar to Google’s ChatGPT.

Firefly has played a significant role in boosting Adobe’s fiscal second quarter results. The company confirmed that it expects AI tools like Firefly to expand its user base and increase its average revenue per user in the future. Pricing for the service will be announced later this year. Market experts are optimistic about this development, with Mark Moerdler of Bernstein stating that “ready-to-use AI, designed for mainstream usage and set to be monetized, is the next step for Adobe.”

This positive momentum is reflected in Adobe’s stock price, which has surged 34% in the past three months. This growth surpasses the gains of the BVP Nasdaq Emerging Cloud Index during the same period. Moreover, Adobe’s stock has now exceeded its pre-announcement levels of its $20 billion acquisition plan for Figma, which caused concerns among investors about weakness in the company’s business and potential regulatory obstacles.

The acquisition’s regulatory approval still remains uncertain. European Union authorities are reportedly planning a more thorough investigation into the deal, causing a 2% decline in Adobe’s stock price. U.S. regulators are also closely scrutinizing the acquisition. While the deal has not been blocked yet, it has been over nine months since Adobe announced the acquisition, whereas its previous deals over $1 billion were typically finalized within two months, according to FactSet data.

Despite these challenges, Adobe remains confident that it can close the Figma acquisition by the end of the year. Analysts’ opinions on the deal vary, with many acknowledging its potential benefits while remaining cautious about the regulatory environment. Brent Thill of Jefferies noted that “investors are generally skeptical that the deal will close due to extended antitrust reviews,” while Moerdler of Bernstein believes that “the Adobe story, with or without Figma, is solid.” AI has transformed Adobe’s largest-ever deal from a necessity to a strategic opportunity.

For more information, contact Dan Gallagher at [email protected].