While investors have flocked to AI stocks in the past 18 months, some companies have sold off as AI technology threatens their business model. Software can now replace what an employee does, not only saving money, but also completing the work at a much faster rate.
A third set of companies is one where AI may lead to some big opportunities but also has the potential to decimate an existing business. These companies are likely to get whipsawed.
One such company is Adobe (ADBE). The software company’s core business could be under threat from AI. But the content creation ecosystem still runs on Adobe’s software.
Shares have been dropping this year, down nearly 20%. But they’re showing no signs of slowing down. Earnings have beat expectations in each of the last four quarters.
Plus, Adobe has a 24% profit margin. Sporting a PE ratio of 26, shares trade at a premium to the overall market. That’s a sign that investors haven’t given up on shares yet.
Action to take: Adobe looks ready to trend higher after several months of underperforming the market. Shares can likely see double-digit returns in the coming months.
For traders, the July $520 calls, last trading for about $16.00, could see mid-to-high double-digit returns from a bounce higher in the coming weeks.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.