Investors have been concerned about AI spending in the most recent earnings season, even as many big-name companies reported big spending on AI projects. While that put tech stocks in a funk, last week’s statement from Nvidia’s (NVDA) CEO noted that the AI trend is alive and well.
That said, the market is still willing to punish companies with short-term concerns over AI spending or results. That can create an opportunity for investors looking to buy ahead of a year-end rally.
For instance, software developer Adobe (ADBE) reported earnings Friday. While expectations were beaten, fears of a lack of profits from AI projects took shares down nearly 9%.
Currently, Adobe is now flat for the year, even with revenues up 11% and earnings up over 20%. And with shares trading at about 20 times earnings, the market is still undervaluing Adobe’s AI potential.
Action to take: Investors interested in an AI play with rebound potential over the next few months may want to build a stake in shares here. The stock can likely shake off its post-earnings drop given its improving financial condition.
For traders, the January 2025 $650 calls, last trading for about $7.50, could see mid-double-digit returns, depending on the strength of a rebound rally. Traders may want to use a bullish day for shares to take a short profit on the trade.
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.