This story appeared first Technical Manual and is republished here with permission.
It’s back to the pattern of Adobe, which has been selling most quarters in earnings reports, then jumped sharply in the last report, in June, and is now down nine percent on Friday, at $532.28, following Thursday evening’s earnings report. .
The proximate cause of the decline is the flip side of what drove stocks higher in June. The June report saw a better-than-expected forecast for what it called “net new Digital Media ARR,” the expected amount over the next twelve months of recurring revenue for the company’s business line, “Creative Cloud.” Last night’s forecast, in contrast, was slightly lower.
The debate today is whether to take that deficit seriously.
Don’t take it too hard, advises Mark Moerdler of Bernstein, who reiterates his Outperform rating on the stock, and lowered his price target to $644 from $660. He admits that investors are “confused” because the company in June led them to believe that the business was “growing” in the last half of this year.
But, the reasons for the slowdown are minor, in his view, such as the effects of foreign currency exchange during the quarter, and the retail extravaganza known as “Cyber Monday” which falls outside the quarter. All of these things made the forecast “visibly dim,” he wrote—one of the greatest proverbs I’ve heard in a long time!
Still, Moerdler criticizes the administration for not speaking clearly. “We feel that given the complexity of the business, managers should make an extra effort to prioritize many things in advance (eg holiday season shifts), to avoid problems that could cause unnecessary anxiety or stock panic,” he writes.
“We still think Adobe’s business remains strong, well positioned to monetize AI,” Moerdler concluded. However, he is sad about stocks. “While we like the stock long-term, we think in the short term there is no clear reason for the stock.”
Some bullish types also tend to look at “moving parts,” but KeyBanc’s Jackson Ader, who was cautious back in June, remains concerned.
All of the company’s explanations for the shortage are “reasonable” except for the Cyber Monday items, he writes, which are known in advance. “But sometimes it’s not about the details, it’s about the essence,” he writes. “For all the positive momentum the Company is making with product, innovation and performance, we may have a situation this quarter where the list of reasons looks like a list of excuses.”
Ader warns that the company may have to sacrifice profit margins if it is to sustain growth.
“This has been our main concern that most of you are probably tired of hearing,” he writes. “Adobe might have to degrade its limits to save income growth.
“From the perspective of the exit velocity of the metrics this quarter, the margin is deteriorating again growth is now on the cards in FY25 unless the Company’s AI capabilities can materialize, accelerating revenue to reduce innovation costs.”
Indeed, the payoff for artificial intelligence is something that hasn’t been seen by many software companies as expected this year, and the decline in Adobe stock—now down 10 percent, year to date—is a sign of investor frustration with that. . The burden of proof is on Adobe’s AI in 2025.
ANOTHER SHOT IN THE ARM
This has been a good week for ARM Holdings, which received a vote of confidence from Lee Simpson of Morgan Stanley on Wednesday, and on Friday received a new approval as Raymond James analysts Srini Pajjuri began covering the stock with an Outperform rating, and $160. price, which is 10 percent higher than the last $146.54. Similar to Simpson, his immediate point is that the company’s version 9 of its CPU design, the new ARM design, will be enhanced by all the AI implemented in devices such as Apple’s iPhone 16. “Edge AI is a key driver of ARMv9, which offers ~2x advantages over the previous generation and has a longer flight path,” Pajjuri wrote.
However, it is worth noting that Pajjuri is also banking on ARM’s attack on the server processor market, where Intel and Advanced Micro Devices dominate with their x86 chips of the architecture set. So far, processors using an ARM alternative have not invaded the server market. But you can see that changing. “Although ARM server adoption has been slow, GenAI requires low-power CPUs and the upcoming NVIDIA GB200 should further accelerate,” Pajjuri wrote, referring to “generative AI,” which is indeed a power hog; ARM designs are generally considered more power efficient compared to x86. The “GB200” here refers to Nvidia’s new components that include its “Blackwell” GPUs and Nvidia “Grace” CPUs, which are based on ARM intellectual property. He notes that there is a growing number of ARM-based chips, driven in part by AI.
“Arm’s leading Neoverse cores are currently designed for NVIDIA’s GB200 as part of the Grace CPU and for processors designed by Google (Axion), Microsoft (Cobalt), and Ampere,” Pajjuri wrote. “Custom silicon for hyperscalers is becoming a strong opportunity for Arm, as we expect custom ASICs to be increasingly paired with ARM CPUs in GenAI clusters.” Pajjuri even made sure that “We are also looking at the possibility that ARM will eventually offer an AI data center accelerator IP, which can significantly increase its SAM.” Pajjuri’s estimates are almost unanimous.
He notes that the stock trades at sixty-six times 2026 earnings per share, “which is below its 70x average last year.” That’s a high price, as he admits. “While we expect the debate on valuations to continue, we see little reason for more pressure in the next 12 months given the strong state of the country’s content and healthy demand across markets.”
I stick to my view that the stock is very rich. I see a better opportunity in Nvidia, trading at less than half of what ARM is trading at. ARM shares, up 5 percent today, have nearly doubled this year, compared to Nvidia’s 140 percent gain.
WISE WORDS FROM THE NOVIX INVESTOR
You may recall that battery technology hopeful Enovix is in the midst of putting together a new factory in Malaysia while also waiting to hear from customers whether its battery samples will meet their approval for smartphone use. Both of those things have kept investors on tenterhooks this year, as the stock is down twenty-three percent this year.
On Wednesday, William Blair’s Jed Dorsheimer, bull on the stock, with an Outperform rating (no price target), held a “fireside discussion” about Zoom with CEO Raj Talluri and investors. That drew positive comments from Dorsheimer that he distributed in a note to clients today. For one, Enovix’s “milestones” are “on the way,” according to Talluri, including battery samples coming off the new “fast-track” line from the Malaysian factory to customers this quarter, and ready for high-volume production by the end of this year.
He also notes that Talluri has assured investors that Enovix has the necessary capital to go the distance. Dorsheimer found that particularly encouraging, he writes, “qualifying and raising the first customer is the hardest part of the story.” Beyond that, Dorsheimer offered some sage advice to the nervous investor about the “volatility” in stocks.
“We believe the excitement will remain in the near term as all the company can do between now and the customer’s PO,” he wrote. “With each milestone achieved, the story de-risks and opens up opportunities for large investors to feel more comfortable building core positions. Enovix is a killer story, and we believe that Dr. Talluri and his team are true professionals and have the ability to achieve scale.”
Get used to it, is Dorsheimer’s advice here, and I think he’s right. Investors like Enovix’s prospects, but that comes with some nail-biting. You can accept that or go somewhere more mature with your investment dollars. At least it sounds like things under the company’s control are going well, and that’s a good thing.
This story appeared first Technical Manual and is republished here with permission.
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