Adobe’s AI Monetization Struggles Lead to Dull Forecast, Shares Drop

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Adobe (ADBE.O) has projected its second-quarter revenue to fall within Wall Street’s expectations, but it is facing challenges in the monetization of its artificial intelligence (AI) products, leading to concerns over its ability to capitalize on the growing demand for AI in creative tools. As a result, shares of the company dropped more than 4% in extended trading.

The company expects second-quarter revenue between $5.77 billion and $5.82 billion, in line with analysts’ estimates, according to data compiled by LSEG. Adobe reaffirmed its annual revenue forecast, and CEO Shantanu Narayen expressed confidence in the company’s ability to capitalize on the acceleration of the creative economy powered by AI.

Despite this optimism, analysts and investors are questioning the pace of monetization for Adobe’s generative AI products. As the company pours resources into differentiating itself from competitors, it aims to enhance its vast portfolio with more AI-driven editing tools. However, there is growing skepticism about whether Adobe can quickly turn its AI offerings into substantial revenue streams.

“I think guidance is rough, and I think people are questioning, is the AI monetization quick enough?” said Parker Snook, a senior research analyst at M Science.

In an effort to stay ahead of rivals, Adobe has been aggressively integrating AI into its software products, notably Photoshop, which is widely used by professionals in a variety of industries. However, its AI and add-on offerings generated $125 million in annual recurring revenue (ARR) at the end of the quarter, and the company expects to double that figure by the end of fiscal 2025, according to CFO Dan Durn.

Despite concerns over AI monetization, DA Davidson analyst Gil Luria is optimistic that new products will eventually ease investor worries: “As Adobe continues to deliver new products, we expect those concerns to be replaced by excitement over those products.”

For the first quarter, Adobe reported revenue of $5.71 billion, surpassing analysts’ estimates of $5.66 billion. The company also saw digital media revenue of $4.23 billion, which exceeded analyst expectations of $4.19 billion. On an adjusted basis, Adobe earned $5.08 per share, above the forecast of $4.97 per share.

TSMC Proposes Joint Venture with Intel’s Foundry Division to Nvidia, AMD, and Broadcom

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TSMC (2330.TW) has pitched the idea of a joint venture involving Intel’s (INTC.O) foundry division to major U.S. chip designers, including Nvidia (NVDA.O), Advanced Micro Devices (AMD.O), and Broadcom (AVGO.O), according to sources familiar with the discussions. Under the proposal, TSMC, the world’s leading contract chipmaker, would oversee Intel’s foundry operations, which focus on manufacturing chips tailored to customer needs, but TSMC would retain no more than 50% ownership.

The proposal has been discussed with several other firms as well, including Qualcomm (QCOM.O), as part of TSMC’s efforts to partner with chip designers. The discussions are still in their early stages, and any potential deal would require approval from the U.S. government, particularly under the administration of President Donald Trump, who has shown interest in helping Intel recover from its financial struggles. Trump is particularly invested in boosting American manufacturing and supporting companies like Intel in remaining U.S.-owned.

Intel, which reported an $18.8 billion net loss for 2024, has seen a drastic decline in its stock price over the past year. As of December 31, the book value of Intel’s foundry division’s property and plant equipment stood at $108 billion. The company’s recent struggles have pushed its board members to consider various strategic moves, including partnering with TSMC for its foundry operations.

Despite some internal opposition, Intel’s board members have expressed support for exploring a joint venture with TSMC, with Intel’s executives holding different views on the matter. Intel’s foundry division, once a crucial part of Intel’s strategy under former CEO Pat Gelsinger, is now central to the company’s efforts to return to profitability, even as Gelsinger was replaced by interim co-CEOs in December.

TSMC’s push for a joint venture is complicated by the significant differences in manufacturing processes and technologies between the two companies. Intel and TSMC currently employ distinct chipmaking methods, which could pose challenges in aligning operations. Intel has previously partnered with Taiwan’s UMC (2303.TW) and Israel’s Tower Semiconductor (TSEM.TA), offering some precedent for potential collaboration, but the specifics of how such a partnership could function remain uncertain, especially regarding the sharing of trade secrets.

While TSMC’s interest is to involve Intel’s advanced manufacturing customers in the venture, discussions have also centered around Intel’s 18A manufacturing process, a key area of contention in the negotiations. Intel executives have claimed that its 18A technology surpasses TSMC’s 2-nanometer process, with Nvidia and Broadcom already testing Intel’s manufacturing capabilities, alongside AMD exploring the potential of Intel’s processes for its chips.

SentinelOne Issues Lower Revenue Forecasts Amid Competition and Economic Uncertainty

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SentinelOne (S.N.) issued disappointing revenue forecasts for both the first quarter and the full year, citing challenges such as tough competition and reduced enterprise spending amid economic uncertainty. This led to a 16% drop in its shares after the market closed on Wednesday.

The cybersecurity company faces significant pricing pressure, particularly in the endpoint security market, where larger platform players like Palo Alto Networks (PANW.O) and CrowdStrike (CRWD.O) are offering deeper discounts. Analysts note that despite SentinelOne’s strong competitive positioning, the sector is feeling the strain of more aggressive pricing strategies. Additionally, economic challenges have led enterprises to curtail spending on cybersecurity solutions, focusing more on cost optimization.

Generative AI, while offering opportunities, has also opened the door for increased cyberattacks. The rise of malicious AI usage has made the cybersecurity industry more critical, with global cyberattacks becoming a significant threat. For example, X, the social media platform owned by Elon Musk, experienced intermittent outages earlier this week due to a powerful cyberattack. Similarly, a cyberattack on UnitedHealth Group‘s technology unit last year compromised the personal information of 190 million individuals, marking it as the largest healthcare data breach in the United States.

Despite these cybersecurity challenges, SentinelOne’s first-quarter revenue forecast was $228 million, below the Wall Street estimate of $235.1 million. For the full year, the company expects revenue between $1.01 billion and $1.012 billion, which is also below analysts’ average estimate of $1.03 billion.

In its most recent financial results for the fourth quarter ending January 31, SentinelOne reported $225.5 million in revenue, surpassing expectations of $222.3 million. The company’s adjusted profit per share for the quarter was 4 cents, exceeding the 1-cent estimate.