Adobe Stock: Hold or Cash Out Your Profits (NASDAQ: ADBE)

Adobe is the leader in artificial intelligence software

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If you want to make money on Adobe Inc., you have my blessing. (NASDAQ: ADBE). Shares of this company have gained 12.37% since my Sept. 25 buy thesis. A gain of 10% or more is Already in my book is a signal to cash in on the proceeds of the note. Seeking Alpha Quant still has one keep rating for ADBE. This implies that traders/investors should be patient and wait for more ADBE gains. ADBE’s Oct. 27 closing price of -1.02% meant some took profits.

ADBE up 12% in a month

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I agree with the Hold suggestion from Seeking Alpha Quant. Be patient; bigger gains are possible. This month’s rebound has not removed the reality that ADBE’s YTD performance is still -43.21%. There’s a good chance that Adobe loyalists will push the stock higher by the end of 2022. Let others drive ADBE’s backlash story. Once your paper gains reach your desired take profit price range, sell ADBE and buy me a beer.

ADBE is showing a backlash story. Please appreciate the green numbers under the 1 month heading. Momentum has changed since my Sept. 25 buy recommendation. I have been an Adobe customer since 1996. I’m a graphic artist/UI designer by training. I view Adobe differently because I can make money from its products, not by trading ADBE.

ADBE's Bullish Reversal Since Motek Moyen Rated Buy

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I believe in Adobe’s new AI related projects. Adobe is at the forefront of artificial intelligence. ADBE’s car is closely linked to the fast-growing artificial intelligence software industry. You don’t have to worry too much about Adobe’s declining revenue CAGR. Grab a beer and name Adobe one of the leaders in the $53.54 billion AI software industry. The AI ​​software’s 41.30% CAGR is good enough to justify ignoring Adobe’s very dismal D+ quantitative profitability rating.

The AI ​​software industry is growing rapidly

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Keep the faith, new AI features are useful

Stick with ADBE. Management is making smart use of the Adobe Sensei cloud AI platform. This is to keep its 26 million Creative Cloud customers happy and loyal. Adobe Sensei’s machine learning and artificial intelligence platforms span Experience Cloud and Document Cloud. I will only discuss how Sensei helps creative professionals and content creators complete their projects faster.

Maintain trust in Adobe with its AI-powered Project Clever Composites. Getting AI to do automatic image composition and then getting paid $30-$80 for graphic design and web/mobile game assets/UI is genius.

Project All of Me is another game-changing AI feature for heavy Photoshop users. Sensei AI will add cropped legs and other parts of the image to make up the complete scene. Project All of Me will also remove unwanted accessories to make portraits more attractive. I, Motek Moyen, have fallen in love with this AI generation feature.

The most important Sensei feature coming to Photoshop is generative art. Photoshop’s original code is editing photos, compositing, and digital painting. It’s now becoming an ethical generative art software that lets customers make money faster.

Going forward, Photoshop will allow lazy designers like me to enter a textual description of a visual and Adobe Photoshop will automatically create it. The current version of the generate function only generates new objects that can be added to existing images.

Ethical AI policy is a long-term winner

My fearless assessment is that Adobe Sensei can already do what DALL-E can do. Adobe is only afraid of the copyright minefield inherent in the full AI-generated imagery created by DALL-E, Stable Diffusion, and Midjourney. Getty Images has banned AI-generated images due to copyright issues. Adobe’s AI ethics are very clear, and it will take responsibility.

The problem with DALL-E and other similar products is that the neural algorithms are trained on billions of graphic content without the explicit permission and knowledge of the rightful owners.

Adobe is a founding member of the Content Authenticity Initiative or CAI. One of the goals of CAI is to ensure that AI-generated content does not distort information about AI-related content. It neatly means that CAI doesn’t want AI-generated content to infringe on the copyrights of others.

Copyright issues based on artistic style are well illustrated in Copyright Law Issues by Ed Sheeran, USA. Sheeran’s Thinking Out Loud song is sued for $100 million. The complainant claims that the style/feel of the song is based on Marvin Gaye’s Let’s Get It On.

Fantasy illustrator/digital artist Greg Rutkowski is very upset that others are using his name as a text input for Stable Diffusion to generate artwork based on his work/personal style. I’d be really pissed if an AI platform would train its generated financial writing bot on my Seeking Alpha/I Know First/TipRanks article. They need to pay me before they can start training their AI based on my job/style. I claim royalties for every investment idea generated by artificial intelligence based on my work.

Project Blink should impress you. It’s a new AI technology that lets editors use a word-processing-like interface to speed up their video editing work. Project Blink’s AI will help editors make money faster.

Adobe Express (Adobe’s platform for rival Canva) is getting AI-powered template recommendations, quick background removal, video trim/merge, video to GIF, and advanced search/recommendation. Adobe Express is important to Adobe’s future because of its template-centric approach.

Like Canva, Adobe Express allows untrained people to easily create impressive print/web/video content. Adobe Express is for clients on a budget who can’t hire a professional graphics artist or video editor.

downside risk

Adobe’s growing AI efforts in Creative Cloud software may offset its relatively overvalued. ADBE’s year-to-date performance is -43.21%. Seeking Alpha Quant’s AI still says ADBE’s valuation ratio is significantly higher than its industry peers. No AI algorithm can refute the valuation statistics below.

ADBE is relatively overvalued

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Adobe’s GAAP forward price-to-earnings ratio is 32.17 times. This is 52% higher than the information technology industry average of 21.04 times. This relative overvaluation is risky because Adobe’s revenue CAGR is declining. The CAGR of 14.87% is lower than Adobe’s 5-year average revenue growth rate of 21.18%.

Buying Figma for $20 billion means Adobe isn’t paying a dividend anytime soon. Adobe will pay Figma $10 billion in cash and $10 billion in ADBE stock. Adobe will increase its debt load as it has less than $6 billion in cash.

ADBE’s high profitability may be the reason why it is still relatively overvalued. There are many alternatives to Creative Cloud software products. Adobe still touts an 87.66% gross margin. Its net profit margin of 28% is 655% higher than the industry average of 3.71%.

ADBE's high profitability is the reason why it is relatively overvalued

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in conclusion

Adobe takes an ethical approach to AI software. Here’s why you should hold your ADBE stock. This company does AI right by making sure it doesn’t infringe on the copyrights of others. Adobe’s high profitability is a more important indicator than its relative overvaluation.

The high CAGR of 41.3% for the $53.54 billion AI software industry is a strong tailwind for Adobe Creative Cloud.

The Sensei AI platform should focus on enabling more AI capabilities for Creative Cloud software products. Creative Cloud subscription fees still account for $9.55 billion of Digital Segment’s $11.52 billion in annual revenue.

According to the table below, Creative Cloud remains Adobe’s largest growth driver. Judge ADBE on how management looks after the 26 million Creative Cloud paying customers. Getting customers to use more Sensei AI so they can make money faster is very laudable.

Adobe’s stock has a Piotroski F-score of 6. It works. ADBE’s Altman Z-score was 14.26. This AI software leader is a safe investment you can hold forever.

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