Buy the dip in this mega

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One of the mega-cap tech stocks that thrived during the AI boom last year has so far witnessed a negative performance in 2024, which Jefferies analysts see as an opportunity.

While many AI-related companies extended their momentum this year, software maker Adobe (NASDAQ:) is down more than 7.5% year-to-date. Analysts at Jefferies attributed the decline to OpenAI’s intro of Sora, its text-to-video GenAI tool.

However, analysts at Jefferies don’t believe this will continue to disrupt ADBE in the long term.

Adobe is set to report its fiscal Q1 earnings on Thursday.

“We do expect a beat for FQ1 as well as positive metrics on Firefly AI adoption. Also, we're hopeful to hear a direct response to Sora with more details on the Firefly video AI roadmap - either at earnings or in the near future,” they said in a note.

“We expect the added clarity to return ADBE as a top beneficiary of AI - just as we saw last yr after the initial shock from DALL-E & Midjourney image AI,” analysts added.

As for its Q1 results, Jefferies expects Adobe's FQ1 digital media (DM) revenues to exceed the guidance of $3.77-3.80 billion by $20-30 million, which would extend its four-quarter streak.

Key catalysts listed by the broker include sustained high website traffic, active content creation during the holidays, contributions from the full quarter of Firefly and the Creative Cloud price increase, and positive feedback from a January business tour indicating stronger prospects in 2024 compared to 2023.

For net new Annual Recurring Revenue (ARR), analysts anticipate surpassing the $410 million guidance by more than $30 million, following previous quarters' beats.

They also project a slight outperformance for first-quarter earnings per share (EPS) and total revenue, which Wall Street forecasted at $4.38 and $5.14 billion, respectively.

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