Nasdaq 100 outlook: Where next for Adobe stock ahead of Q2 earnings?

Key takeaways

• Adobe stock is at 14-month highs as markets embrace new artificial intelligence tools
• Wave of brokers have recently upped their target price on new AI catalysts
• Forecast to report fourth consecutive quarter of slower sales growth, but will this be the trough?
• Some analysts see opportunity for a beat and for the outlook to be raised again
• Figma acquisition still going through the regulatory process

When will Adobe release Q2 earnings?

Adobe will release second-quarter earnings after US markets close on Wednesday June 15. A conference call is scheduled on the same day at 1400 PT.

Adobe Q2 earnings consensus

Adobe is forecast to report a 8.7% year-on-year rise in revenue in the second quarter to $4.77 billion and adjusted EPS is expected to jump 13% to $3.79. 

Adobe Q2 earnings preview

Adobe has become the latest stock to find some momentum from artificial intelligence, with the stock trading at 14-month highs after releasing a wave of AI tools. Among the most significant are its platform Firefly, which is designed to generate images, and new tools powered by Sensai GenAI, which generates text.

Any signs that AI can provide a substantial catalyst or that Adobe is already successfully monetising new tools would be welcome. Several brokers hiked their target price on the stock, with Wells Fargo upgrading to Overweight, after Adobe unleashed Firefly to customers. Wells Fargo analyst Michael Turrin said most of the early value that has been assigned to AI has gone to larger, established platforms and that there is still an opportunity for others to breakout as they demonstrate their ability to monetise new tools, adding that Adobe operates in a less competitive landscape. It said Firefly should provide a ‘much needed next act’ for Adobe.

Out of wave of brokers that have upped their view on the stock since the start of June, the lowest price target sits at $450 while the highest is at $530. The average price target currently sits at $447.45, up from below $400 a month ago! Adobe currently trades around $463.

Away from AI and turning to the results, Adobe is expected to report its fourth consecutive quarter of slower sales growth as it is not immune to the pullback in spending in a tough environment. However, following Adobe’s decision to raise its full year outlook in the last quarter, analysts at TD Cowen have said they expect a ‘solid beat and modest raise’ when it reports results this week. That comes as Wall Street believes this will be the trough for topline growth and that it can quickly return to double-digit sales growth in the third quarter – which will place some pressure on the outlook.

With that in mind, look at the guidance for the third quarter, when markets anticipate it will target adjusted EPS of $3.89. Any changes to the full year outlook would also be significant, with Adobe currently aiming to deliver adjusted EPS of $15.30 to $15.60.

Meanwhile, Jefferies analyst Brent Thill said investors are also focused on Figma, the design platform that Adobe agreed to buy last year for $20 billion. The deal is currently trying to clear regulatory hurdles as officials examine the deal, with the company having warned it expects ‘lengthy reviews’. It is a big deal for Adobe, which has said the acquisition will be ‘transformational’. It is still hoping to complete the deal by the end of 2023.

Not all analysts are as bullish. Citi analyst Tyler Radke, which has a more cautious Neutral rating on Adobe, has said upside could be limited going forward. While ‘incrementally positive’ heading into the results, Radke said he would like to see ‘more signs of sustainable strength in core [digital media] trends amidst Adobe lapping price tailwinds, ongoing Figma M&A overhang, and more confidence that Adobe’s incremental monetisation of GenAI can offset increased competition’.

Where next for ADBE stock?

The rally in Adobe shares appears to be gaining even further traction at the start of the new week, with the stock trading up another 2% in extended hours today and poised to open at fresh 14-month highs of $464.

That puts the stock on course to keep climbing toward the ceiling that we saw in the two months to early April 2022 at $473, also in-line with the floor we saw back in May 2021. A move above here could open the door to a much larger move back over the $500 mark, representing the firm ceiling that held throughout late 2020 and early 2021.

The recent rally has pushed the RSI deep into overbought territory, suggesting it may be more difficult to find higher ground going forward. Having risen above the previous peak we saw last August, investors will hope that $451 will provide some fresh support if it does come under pressure, although it could slip back below $440 if the rally reverses. Any drastic disappointment risks seeing it spiral back below the $400 threshold.

Nasdaq 100 analysis: Where next for the index?

Adobe is a member of the tech-heavy Nasdaq 100 and makes up over 1.4% of the index, putting it in the top 15 weightings. Results could also impact sentiment for rivals and other tech stocks such as Oracle, Autodesk and Alphabet.

The Nasdaq 100 has found it more difficult to find higher ground since hitting 14-month highs this month. It has tried and failed to successfully close above 14,574 since the beginning of June, suggesting appetite above here is being tested. A breakout above here puts it on the path toward 15,000, which would allow it to recapture the March 2022 peak and head toward the 78.6% retracement from the lows we saw last October.

On the downside, we can see that the index has found some support at just above 14,300, in-line with the 61.8% retracement. The RSI has fallen back below a key level but is still testing overbought territory. Any slip below here risks seeing it fall toward the August peak of 13,670.