Key points in this equity note
- Adobe earnings underscore Microsoft’s comments that generative AI sales will be gradual and not an explosion.
- Arm IPO was a success with retail investors piling into Arm yesterday on the first day of trading pushing shares up 25%.
- Better-than-expected macro figures out of China on top of policymakers cutting the reserve requirement for Chinese banks have lifted sentiment in commodities and European luxury stocks.
Adobe earnings: The AI rush is failing to turn into a gold mine
Given the strong promises of growth from generative AI there was a lot of attention of Adobe earnings last night as Adobe, providing creative and content software, is a sweet spot for capitalizing on the generative AI hype. The FY23 Q4 (ending 30 November) outlook on revenue was in line with estimates suggesting minimal impact on growth rates from the new AI features. Adobe announced that it will hike prices across products on 1 November and with additional fees for using AI features. Our interpretation of the Adobe earnings is that the generative AI hype is creating a gold rush into Nvidia GPUs but that commercialization will take much longer than what is priced in financial markets.
Arm IPO: Minimal float pulls retail investors into the stock
Arm shares rose 25% yesterday on its first day of trading cementing the positive vibes around the IPO which was significantly oversubscribed. Due to the small offering translating into roughly a 10% float retail investor participation in the actual IPO offering has been small. This likely generated a lot of demand from retail investors on the first day of trading which we can confirm at Saxo as Arm shares were fifth most traded globally in yesterday’s session. Our take on Arm remains that its valuation is quite stretched and is predicated on strong expectations that generative AI will structurally lift future growth for Arm.