Adobe Stock Jumps 15% After AI-Fueled Earnings Beat—Watch This Key Level

Adobe (ADBE) shares surged nearly 15% in extended trading on Thursday after the software maker reported earnings that topped Wall Street’s estimates and lifted its full-year earnings and sales guidance amid robust demand for its suit of generative artificial intelligence (AI) digital media products.

Below, we identify a key level to watch out for on Adobe’s chart and review the company’s latest earnings report.

Breakout From Falling Wedge Pattern

Since forming a double top between December and February, Adobe shares have traded within a falling wedge, a bullish chart pattern that indicates a potential upward price movement. More recently, the stock found buying interest near the wedge’s lower trendline, with volume increasing slightly over the past week leading into the company’s quarterly results. 

Following Friday’s expected earnings-driven breakout from the pattern, investors should keep an eye on the $535 level, an area on the chart where the price may encounter selling pressure near the closely-watched 50% Fibonacci retracement level, which also sits in close proximity to the downward sloping 200-day moving average and a period of February price consolidation.

The stock rose 14.8% to $526.43 in after-hours trading Thursday.

Earnings and Sales Top Expectations

In the three-month period ending May 31, the company posted adjusted earnings of $4.48 per share, above analysts’ estimates of $4.39 a share. Revenue in the period of $5.31 billion grew 10% from the same quarter last year and edged past expectations of $5.29 billion.

The company’s Digital Media business, which houses its Creative Cloud subscriptions, reported net-new annualized recurring revenue of $487 million, well above Wall Street expectations of $437.4 million. Adobe noted that it’s seeing Creative Cloud subscribers upgrade their plans to access Firefly capabilities, the company’s generative AI model to enhance users' creative work.

“We’re pleased with the adoption of AI functionality as well as its early monetization across Document Cloud and Creative Cloud, including our flagship applications, Firefly services and Express,” Adobe’s Digital Media president David Wadhwani told analysts on the company’s conference call.

Adobe Lifts Full-Year Guidance, No Sign of Slowdown

Turning to the full fiscal year outlook, Adobe lifted both its top and bottom-line guidance. It now expects adjusted earnings to range between $18.00 and $18.20 per share, up from $17.60 to $18.00 a share. It sees annual net sales of $21.40 billion to $21.50 billion, bumping the lower end of that forecast by $100 million. Analysts had been calling for adjusted earnings of $18.02 a share on revenue of $21.46 billion.

While other software companies have recently trimmed their full-year guidance citing concerns over an uncertain economic outlook and softening enterprise interest in AI development, Adobe CEO Shantanu Narayen told analysts on Thursday that the company hadn’t seen any noticeable changes to the economy.

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As of the date this article was written, the author does not own any of the above securities.