Adobe Stock Undervalued, Says Analyst As It Breaks From Cautious Tech Pack, Lifts Guidance

Core Insights - Adobe's stock experienced a decline despite a strong second-quarter earnings report, which included revenue of $5.87 billion, an 11% increase, and adjusted earnings of $5.06 per share, surpassing analyst expectations [1][2] Financial Performance - Quarterly revenue reached $5.87 billion, exceeding analyst estimates of $5.79 billion, with a year-over-year growth of 11% [1] - Adjusted earnings per share were reported at $5.06, beating the expected $4.96 [1] - Digital Media revenue grew by 11%, while Digital Experience revenue increased by 10% [1] Future Guidance - For the third quarter, Adobe anticipates revenue between $5.88 billion and $5.93 billion, slightly above the estimated $5.87 billion, and adjusted earnings per share between $5.15 and $5.20, compared to the expected $5.10 [2] - Full-year 2025 revenue guidance was raised to $23.5 billion to $23.6 billion from a previous range of $23.3 billion to $23.55 billion, with adjusted earnings guidance increased to $20.50 to $20.70 per share from $20.20 to $20.50 [3] Analyst Ratings - Goldman Sachs analyst reiterated a Buy rating with a price target of $570, while Bank of America raised its price target from $424 to $475, maintaining a Buy rating [4] - Piper Sandler also maintained an Overweight rating with a price target of $500 [4] Market Reactions - Despite the positive earnings, Adobe's stock was indicated to drop by 2% after hours as investors assessed the sustainability of its double-digit growth and the impact of AI revenue [5] - Analysts noted that Adobe's AI strategy is evolving and could significantly contribute to future growth, with AI-related products showing strong performance [7][8] Growth Drivers - Adobe Experience Platform and Apps subscription revenue grew by 40% year-over-year, with the Firefly App seeing a 30% increase in first-time subscribers quarter-over-quarter [6] - Document Cloud, particularly the Acrobat AI Assistant and Adobe Express, contributed significantly to Digital Media strength, with 8,000 new customers added [10] Industry Context - The outlook for fiscal 2026 appears more resilient compared to other software companies, indicating effective execution on growth initiatives [11] - Analysts suggest that while growth may moderate, Adobe remains an attractive option for value-oriented investors [13]