Shares of PDF, video, design, and marketing software giant Adobe (ADBE 1.44%) rallied 24.9% in June, according to data from S&P Global Market Intelligence.
Adobe had been rather beaten down this year coming into June, as it was down 25% for 2024 on May 31. That, on the back of better-than-expected earnings, set up a positive month for the company. Here are the market's concerns around Adobe and how the company overcame them in June.
A solid beat and guide
For the fiscal second quarter, Adobe reported 10% revenue growth to $5.31 billion, while adjusted (non-GAAP) earnings per share of $4.48 was up 14.6%. Both top and bottom lines came in ahead of expectations. Moreover, management guided for earnings between $4.50 and $4.55 next quarter, also ahead of analyst expectations of $4.48.
The report was likely a relief to investors who had grown nervous over the course of the year. Software stocks, in general, have struggled in 2024, as some investors believe enterprises might pull back on software spending to experiment with artificial intelligence (AI).
On the one hand, Adobe has been quick to come out with new AI-enhanced tools, though, such as Adobe Express, an AI-powered app for making graphics and videos for social media. It is also infusing AI tools into its trusted product suite spanning Acrobat, Premiere, Photoshop, and Illustrator.
On the other hand, the prospect of text-to-image AI presents a potentially disruptive threat to the graphics software giant. But June's earnings report seemed to indicate these threats aren't necessarily harming Adobe's business -- at least not yet.
Will incumbents be threatened or benefit in the AI era?
AI has been thought of as potentially disruptive to large companies. But in this first inning of AI innovation, it appears those very incumbents with big installed bases of customers and the means to invest in these expensive tools are doing fairly well. While much has yet to be determined, Adobe's strong earnings report, AI commentary, and guidance seem to have allowed investors to breathe a sigh of relief in June.
