News and analysis

The market's attitude to Adobe stocks is finally beginning to synchronize with my own opinion, I described more than three months ago, in mid-March. My ideas on the company's undervaluation were essentially correct but premature. It happened to be too early for purchasing shares of Adobe immediately after a 13.5% decline. The price persistently tried to bounce for more than two weeks, then it dropped by another 10% in April and May. The narrative transformed into positive only at the end of last week, following the latest quarterly report. The share price gapped from nearly $460 to above $530 in one night after the report, adding more than 15% to follow the creative software developer's positive revision of its total sales forecast for 2024. The owner of Photoshop, Illustrator, Acrobat Reader and other well-known software that also invented the PDF format for graphic files is now focused on Adobe Creative Cloud services, betting on growing demand for artificial intelligence features. Many investment houses responded by raising their "fair values" for Adobe after its CEOs shifted to higher estimates for the next quarter guidance, including a revenue range of $5.33 billion to $5.38 billion, and $4.50 to $4.55 for EPS (equity per share). The last quarter's revenue increased by 11% YoY in constant currency to $5.31 billion. So, the forecast update was rather solid, resulting to the full year potential of $21.40 billion to $21.50 billion in revenue (from previous numbers announced between $21.30 billion and $21.50 billion) and of $18.00 to $18.20 in EPS (from $17.60 to $18.00 only). Adobe also raised its new digital media subscription metric from $1.90 billion to $1.95 billion.

Consumption for enterprise customers is good and may grow further because of Adobe’s generative AI solution, named Firefly. This web application is widening the door for new customers, offering "new ways to ideate, create, and communicate while significantly improving creative workflows", according to the software description. Adobe Acrobat also has AI-powered advancements. That's probably why the operating margin reached 46.0%, compared with 45.3% in the same season of 2023.

Yet, there is also a fresh reason for Adobe share price to be stalled at new higher levels, and that is the US governmental trade commission's lawsuit to the company for allegedly hiding some hefty termination fees (in the fine print, or behind text boxes and hyperlinks), concerning its most popular "annual paid monthly" subscription plan, while making it difficult for subscribers to cancel. It is said that early termination fees amounted to up to 50% of the remaining payments when consumers tried to cancel subscriptions in their first year, while Adobe also "forced" subscribers, who want to cancel online to navigate through numerous pages, while some clients, who tried cancelling by phone were disconnected and then had to repeat their claims to multiple representatives. Accusations in setting the sign-up trap for its clients and violating consumer protection laws needs at least some time, and maybe money, to be settled down.

Meanwhile, there is nothing new in the matter itself, as a similar lawsuit was filed against Amazon, about one year ago, where the US government accused Amazon of making it too hard for its customers to cancel their Prime memberships. And you are right that nothing principally bad happened with mid-term prospects in Amazon shares. So, I do not think any serious damage would be done to Adobe as well. Therefore, personally I feel that any price decline in the stock would only give a better opportunity to buy for those who refrained from doing so in the three previous months. At least, my buy positions, which I opened in mid-March have already begun to bring profit.

By the way, a very similar technical pattern was formed on Adobe charts in early summer 2023, with a reverse break up through the previously (in September 2022), temporary and falsely broken support level (a bit below $350). After that, the stock successfully recovered and set its new all-time high soon. I'm not insinuating anything, I'm just speculating!

Apple gains are still limited by a range between $213 and $217 per share, except on initial take-off days on June 11-12 when it just updated all-time highs to show a beautiful number of $220.20 at some moment. It is unsurprising that Wall Street crowds are not in a rush to touch it again, not to mention testing the next psychological milestone at $225. Although this will probably happen eventually, the iPhone maker is clearly lagging behind the major AI (artificial intelligence) rally, led by the current market's favourites, as a widely announced Apple Intelligence instead of usual artificial intelligence is mostly based on using Apple's partnership on several other companies' know-hows and NVIDIA's chips. Apple's assistant Siri mostly studies AI wisdom through the language, previously invented by OpenAI's ChatGPT, which is now Microsoft's best friend, even if Apple would benefit from this technology by its potential new iPhones sales increase.

Maybe that's why many investment houses are ready to revise their target price outlook for Apple at a slower pace compared to other IT segment leaders. They are not talking about its raising by factors like 1.4 or 1.5. As a bright example, JPMorgan analysts were careful enough to improve their Apple's share price projections from $225 to $245, explaining the move with iPhone sales forecast growth. The reputable financial group is now expecting 250 million devices to be sold in 2025 and 275 million in 2026, while a more or less modest annual profit surplus could be seen compared to the surge in sales driven by 5G technology in previous years. JPMorgan's forecast provides for a revision of EPS for fiscal years of 2025 and 2026 to $8.10 and $9.69 per share, respectively, which looks better than contrasts the market consensus after the WWDS, which predicts $7.26 and $7.64 per share for the same periods.

Apple delivered 234.6 million smartphones to the global market in 2023, surpassing Samsung by 8 million units and becoming the world's leading smartphone manufacturer. Samsung chief Jay Y. Lee discusses cooperation with Meta, Amazon and Qualcomm with their meeting topics including AI plus cloud services and chips. Meta's founder Mark Zuckerberg invited Jay Y. Lee to his home on June 18, and their discussions "spanned AI as well as virtual and augmented reality", Samsung Electronics officially noted in a statement. Lee also met with Amazon CEO Andy Jassy and Qualcomm CEO Cristiano Amon to discuss "cooperation in semiconductors, including memory chips for Amazon's data centres and cloud services as well as chip contract manufacturing for Qualcomm's mobile processors", Samsung added. The news suspended further purchases of Apple shares on Wall Street, leading to their decline within a couple of percent.

iPhone sales reportedly declined in China since the beginning of 2024. Some forecasts also try to take into account conservative estimates of the frequency of phone replacement by loyal customers, with a gradual two-year growth to maximum sales volumes, as there is also a chance for using some AI features in earlier iPhone 15 Pro/Pro Max models. Based on these assessments, testing levels around $225 and then $230 per share seems to us as being a matter of several months, while soft purchases when (and if) descending to levels below $210 per share look more appropriate than an aggressive buy directly from current levels, which may be appropriate for smaller trading volumes.

OMG Network (OMG) lost 10.0% to $0.3460 this week, though the drop was much deeper at 20.0% to $0.3090 on June 18 after Binance crypto exchange delisted OMG. The token has already lost 52.0% over the last two weeks following the announcement of Binance's decision, and there are no indications that this decline will stop. OMG is targeting $0.2500, representing another 26.0% downside. Any further decline below this support could be fatal for the token.

NVidia not only stays unsurpassed as the AI-fuelled rally bellwether, but it now gets the official title of the most valuable company on Wall Street. Indeed, NVIDIA's market cap reached $3.34 trillion to surpass the long-time leader Microsoft with its $3.32 trillion. This happened despite the owner of the Windows operating system and Azure cloud service set its all-time high above $450 per share this week. However, the pace of NVIDIA stock's growth is just amazing as the holder of more than 80% of the global AI chip market added another 35% since the last decade of May when it first time surpassed a $1000 barrier. Apple is nominally the third giant in terms of market cap, though it is lagging behind by "poor" $100 billion or so, as the iPhone maker's business rose by nearly 13% for the same monthly period.

NVidia's decision to make a ten-for-one stock split additionally boosted the retail investors' demand. The fact it now costs about $135 instead of $1350 is easing access for crowds, while reputable investment houses continue to raise their target prices for NVIDIA as well. In their note to clients, even a rather sceptical group of Stifel analysts lifted their price estimate for NVidia's share to $165 from a previous level at $114, taking into account longer-term "profitability metric", with expected fiscal 2027 EPS (earnings per share) of $4.10 vs nearly $1.28 in 2023. Stifel mentioned three risk factors like a "potential digestion period following several quarters of significant investment", a possible tightening of US trade restrictions on technology shipment to China and "general macro events". Producing critical components for AI models like ChatGPT and its analogues by other giant developers may pave the path for "near-to-medium term opportunities" due to "high performance computing, hyperscale and cloud data centre, and enterprise and edge computing", they admitted.

Meanwhile, another well-known financial advising company, Rosenblatt Securities, even dared to pull their NVidia price target from $140 to $200 per share, a new Wall Street high. “We see NVidia's Hopper, Blackwell, and Rubin series [of next generation chips and graphic processing units computing platforms] driving "value" market share in one of Silicon Valley's most successful silicon/platform product cycles,” while the "real story is in the software that improves the hardware capabilities", they commented, probably betting on a more speedy growth of software aspects in the overall computing technology sales. Therefore, Rosenblatt sees NVidia's possible achievement of $5.00 EPS or even more by the end of 2026.

We adhere to a more or less balancing targets between the avid optimists and moderate sceptics, basing on the middle between $160 and $200, i.e. in the range between $175 and $180, also bearing in mind the nearest area in the vicinity of $150 as an intermediate short-term goal, which will almost certainly be achieved this summer.

The triad of NVIDIA, Microsoft and Apple advances towards next sky-high levels like having seven league boots on their feet. This also helped the major S&P 500 barometer of Wall Street to come right up to a widely discussed milestone at 5,500 points. And this is unlikely the limit. However, betting on the brightest representatives of the AI segment still looks like a more promising option compared to purchasing the S&P 500 futures right at the moment.