Evercore ISI maintains Adobe stock Outperform with $650 target

On Wednesday, Evercore ISI reiterated its Outperform rating on Adobe stock (NASDAQ:ADBE), maintaining a $650.00 price target for the $199 billion software giant. According to InvestingPro analysis, Adobe is currently trading below its Fair Value, suggesting potential upside opportunity. The firm’s analysis followed Adobe’s announcement of the public beta and impending release of their Gen AI Video/Audio models, along with pricing information for these services. Adobe introduced two subscription tiers for their Firefly platform: Firefly Standard at $9.99 per month or $99.99 annually, which includes 2,000 credits or 20 video generations monthly, and Firefly Pro at $29.99 per month or $299.99 annually, offering 7,000 credits or 70 video generations monthly. The cost per video generation is estimated to be approximately $0.45-$0.50, which is slightly higher than competitors such as Sora and Runway, which are approximately $0.40 and $0.39 per video, respectively.

Adobe asserts that their Gen AI output is commercially viable and the integration within the broader Creative Cloud ecosystem streamlines workflow, justifying the modest premium. Subscribers to Firefly Standard and Pro will also have unlimited access to basic Gen AI capabilities, like image and vector generation, while Creative Cloud subscribers will use generative credits for these features. The report suggested that the higher cost of delivering video models may impact margins in the near-term, though Adobe maintains impressive gross profit margins of 89% according to InvestingPro data. This strong profitability provides cushion for the company’s guided 50 basis points year-over-year operating margin contraction.

Evercore ISI also explored the potential revenue upside from Firefly, projecting that it could represent around $500 million in revenue by calendar year 2026. The firm acknowledges the difficulty in predicting the growth rate of video features and whether this potential is already factored into Adobe’s fiscal year 2025 Creative Cloud Net New Annual Recurring Revenue (NNARR), which would carry over into calendar year 2026 revenue.

The report concluded with anticipation for Adobe’s analyst day on March 18, where additional insights regarding Firefly’s monetization and its implications for Adobe’s long-term growth are expected. With revenue growing at 10.8% and maintaining strong financial health (rated GOOD by InvestingPro), Evercore ISI’s price target reflects confidence in Adobe’s market positioning and its ability to capitalize on its new offerings. InvestingPro subscribers have access to 14 additional key insights about Adobe’s valuation and growth prospects through the platform’s comprehensive Pro Research Report.

In other recent news, Adobe has launched the first public version of an AI tool called the Firefly Video Model, which is designed to generate video clips for film and television studios. The tool integrates with Adobe’s leading video editing software, Premiere Pro, and is priced competitively against similar services offered by OpenAI and Runway. Adobe has also announced executive compensation changes, including the introduction of the 2025 Performance Share Program, designed to align executive interests with shareholder value. This comes following the announcement of the departure of Scott Belsky, Adobe’s Chief Strategy Officer and Executive Vice President of Design & Emerging Products.

In the realm of financial analysis, Deutsche Bank (ETR:DBKGn) has downgraded Adobe’s stock rating from Buy to Hold, citing concerns about the successful monetization of Adobe’s AI initiatives. The bank has also reduced its price target for Adobe’s stock. These changes reflect recent developments in the company and the industry.

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