Adobe (ADBE) Potential Upside Move If Sales Figure Beats Due to AI Productivity Rush

For the fiscal first quarter, Adobe expects non-GAAP earnings of $4.38 per share.

Adobe projects total revenues between $4.35 billion and $4.40 billion. The consensus mark for the same is pegged at $4.38 billion, implying growth of 15.3% from the year-ago reported figure.

During the fourth quarter of 2023, AI and machine learning was the top CIO information technology priority. Efficiency and productivity gains will be first seen in the software and internet space before the broader market and the economy.

The service-oriented markets could see more significant opportunity for gains related to AI-driven efficiency, including software services, consumer services, health care equipment services, financial services, and media entertainment. These subsectors represent over 30% of the expected 2025 net income for the S&P 500 (SP500). In addition, analysts see three potential phases of generative AI-driven productivity: including generic language AI tools, custom models with access to company data, and on-command agents/assistance applications.

Though a high PE ratio might suggest that Adobe stock might fall, but if we take a look at how Oracle has performed due to AI revolution, I believe Adobe would be far away.

ADBE last reported earnings on 13 Dec 2023 after the market close (AMC). ADBE shares declined -6.4% the day following the earnings announcement to close at 584.64. Following its earnings release, 89 days ago, ADBE stock has drifted -4.1% lower.

From the time it announced earnings, ADBE traded in a range between 528.01 and 638.25. The last price (560.42) is closer to the lower end of range.

Estimated implied straddle for upcoming earnings is 8.1%. Based on how we could see from the past earnings, we might see a small price effect upside post earnings.

The options market overestimated ADBE stocks earnings move 58% of the time in the last 12 quarters. The predicted move after earnings announcement was ±5.6% on average vs an average of the actual earnings moves of 5.4% (in absolute terms).

This suggest that option valuation is slightly overvalued, we could be seeing a small volatility in price movement after its earnings.

The current Skew Indicator is showing Bullish. The implied volatility skew shows the market's bias for pricing in volatility risk to the option premium of downside puts and upside calls. If the implied volatility for downside puts is decreasing relative to upside calls, then that suggests the market is already pricing to an upside move.

Adobe could be benefitting from the sales of its product and services as enterprise gear up to increase productivity by using AI to replace mundane tasks. Adobe suite have been pretty much preferred choice.

Appreciate if you could share your thoughts in the comment section whether you think Adobe would post a better-than-expected earnings after benefitting from AI productivity rush.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.