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Morgan Stanley analyst expects Adobe (ADBE) shares to gain another 25% over the next year.

Adobe has been among the top beneficiaries of the artificial intelligence boom this year. The technology giant has gained around 57% year-to-date, rallying on the excitement surrounding its AI offerings. Moreover, some analysts believe the company has room for more growth. 
 

Morgan Stanley Analyst Expects Adobe to Gain Another 25%

Morgan Stanley analyst Keith Weiss has predicted that Adobe will see its shares climb another 25% over the next year. This projection comes after Adobe’s phenomenal 57% surge this year, driven by investor confidence in its artificial intelligence (AI) strategy. 

Weiss has set a new target of $660 per Adobe share, which will see the stock reach near its 2021 record of $688.37. “Greater clarity on AI-enabled products and the monetization roadmap increase our confidence in reaccelerating the creative cloud organic growth engine,” Weiss wrote in a note, upgrading the stock to overweight from equal-weight.

Last month, Adobe revised its outlook, raising full-year revenue and profit expectations as it integrated generative AI features across its product lineup. Weiss remains optimistic, predicting that Adobe’s earnings growth could reach the mid or high-teens in the next three years.

Adobe’s recent rally began towards the end of May, with its shares soaring 40%. The company’s revelation of its AI strategy and the reassurance regarding potential competition from smaller tech firms significantly boosted investor confidence.
 

Adobe is Bringing AI to its Products

In May, Adobe introduced Generative Fill in Photoshop, incorporating the Firefly generative AI into design processes. This feature allows users to easily manipulate images by adding, extending, or removing content using simple text prompts. 

Before this, the computer software company also had a strong track record of AI innovation. Through features like Neural Filters, Content Aware Fill, Customer AI, and Liquid Mode, Adobe has empowered users to create, edit, measure, optimize, and review vast amounts of content. 

More recently, the company further expanded generative AI capabilities in Photoshop by adding the “Generative Expand.” The feature allows users to expand and resize images beyond their original limits. Users can generate AI-generated content that seamlessly blends with the existing image by using the Crop tool and clicking and dragging. 

The Generative Expand feature is helpful for scenarios where subjects are cut off, aspect ratios need adjustment, or objects are misaligned. Users can add generated content to the canvas with or without a text prompt, and it is added as a new layer, allowing users to discard it if desired.
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Big Tech Companies Emerge as Key Winners of the AI Boom

Big tech companies, particularly those specializing in generative AI, such as Meta, Microsoft, and Alphabet, have emerged as the biggest winners of the AI boom. These companies have rallied on the back of growing optimism around AI, propelling a more than 35% growth in the tech-heavy Nasdaq composite.

For one, Nvidia, whose chips are essential to creating AI language-generating tools like ChatGPT, has seen its stock skyrocket over the past few weeks. Aside from Nvidia, several other manufacturers of high-performance computing and graphics solutions have also seen a sharp spike in their stocks.

Furthermore, Meta, which has shifted its focus towards AI and open-source contributions, has seen a 170% rise in its shares since the beginning of the year. The rally comes as the company has been increasingly focusing on AI since the start of the year. 

Microsoft, which has invested $13 billion in OpenAI, the company behind LLM GPT-4 and ChatGPT, and Google parent company Alphabet are two other technology companies that have benefitted from the rise of AI. Microsoft has gained more than 41% YTD, while Alphabet has risen more than 49% since the start of the year. 

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