BMO Capital Markets analyst Keith Bachman reiterated the Outperform rating on Adobe Inc. (NASDAQ: ADBE), raising the price target to $670 from $645.
The analyst writes that Adobe is a market leader in its three core product categories: Creative Cloud, Document Cloud, and Experience Cloud.
According to Bachman, AI and Adobe Express can help net new ARR and growth for the company.
Adobe, along with Microsoft Corporation (NASDAQ: MSFT), will be one of the clear beneficiaries of generative AI into FY24, the analyst adds, after spending some time with Adobe senior leadership.
Adobe will not start charging for generative credits until the start of CY24, and revenue will be recognized in ARR, the analyst adds.
In the long term, Adobe can convert free into paid users and paid users into higher-level paid users once credit limits are reached, Bachman notes.
Over time, Adobe's generative credit strategy will evolve, especially as more types of media are produced.
Moreover, Adobe will work with enterprises to create a credit pool system across a user base in an enterprise agreement.
Further, Adobe could change pricing structures over time.
Hence, the analyst highlights that generative credits will drive revenue growth over the medium to longer term, though not in the near term.
Other key catalysts for the company include expanding partnership announcements with major tech players, margin upside, and AI potential.
Price Action: ADBE shares are trading higher by 2.95% to $594.81 on the last check Friday.