Adobe shares surge 15%, head for sharpest rally since 2020

Adobe shares surged 15% on Friday, the biggest gain since March 2020, after the software maker reported earnings and revenue that beat analysts' estimates.

After the bell on Thursday, Adobe reported earnings per share of $4.48, topping the LSEG consensus estimate of $4.39 per share. Revenue increased 10% from a year earlier to $5.31 billion, exceeding analyst estimates of $5.29 billion.

CEO Shantanu Narayen attributed Adobe's record revenue to its strong growth across Creative Cloud, Document Cloud and Experience Cloud and its advancements in artificial intelligence.

"Our highly differentiated approach to AI and innovative product delivery are attracting an expanding universe of customers and providing more value to existing users," Narayen said in a press release on Thursday.

New annualized recurring revenue for the Digital Media business, which includes Creative Cloud subscriptions, came in at $487 million, beating the StreetAccount consensus of $437.4 million.

Adobe's results provide a contrast to what software investors have seen from many industry peers of late. Salesforce shares suffered their worst plunge since 2004 late last month after the cloud software vendor posted weaker-than-expected revenue and issued disappointing guidance. That same week, MongoDB, SentinelOne, UiPath and Veeva all pulled down their full-year revenue forecasts.

However, there were positive signs in the sector this week. Oracle shares rallied after after the database company announced cloud deals with Google and OpenAI, even as fourth-quarter results fell short of Wall Street expectations. And CrowdStrike jumped on Monday following the announcement after the close last Friday that the cybersecurity company would be added to the S&P 500.

JMP analysts, who have the equivalent of a hold rating Adobe, wrote in a note after the earnings report that the company's results were uplifting despite a challenging economic environment and increased competition in design software.

"We like how Adobe is integrating AI functionality across its product portfolio," the analysts wrote.

Meanwhile, analysts from Piper Sandler raised their revenue estimates slightly by $73 million for fiscal year 2024 and by $71 million for 2025. 

"Customer reactions to recent innovations were encouraging, as increasing availability of AI-powered solutions are expected to drive further user acquisition" and better average revenue per user, wrote the Piper Sandler analysts, who recommend buying the stock.

Even after Friday's rally, Adobe shares remain down 12% for the year. The stock was trading at $525.88 as of the afternoon.

WATCH: CNBC's interview with Adobe CEO Shantanu Narayen