The stock market has been on a roll lately, but it looked as though Friday morning would have a mixed start on Wall Street. Even though futures on the Dow Jones Industrial Average saw modest gains, indexes with a greater concentration of tech stocks didn’t seem to fare as well, pointing toward a potentially lower open.
A pair of high-profile tech stocks came into the spotlight Friday morning, and both saw their share prices move lower in premarket trading. Adobe (NASDAQ: ADBE) reported quarterly financial results that failed to live up to all of the expectations of its shareholders, while ASML (NASDAQ: ASML) had to deal with a warning from a key customer that could point toward a slowdown in its business in the near term.
Shares of Adobe were down almost 4% in premarket trading. The creative software giant reported fiscal third-quarter financial results for the period ended Sept. 1, and while the numbers looked solid, they weren’t quite enough to satisfy investors who are increasingly hungry for accelerating growth.
Adobe posted revenue of $4.89 billion for the quarter, which was up 10% year over year. Gains were roughly consistent across the business, with the software company reporting 11% sales growth in its digital media segment and a 10% gain in revenue for its digital experience business. Adjusted net income of $1.88 billion climbed a healthier 18% from year-ago levels, producing adjusted earnings of $4.09 per share.
Adobe remains optimistic about its capacity to capitalize on opportunities in artificial intelligence (AI). CEO Shantanu Narayen pointed to “a new era of AI-enhanced creativity around the world” that new product launches should help to promote, and Adobe continues to make large investments to bulk up its technology platforms and take advantage of new demand.
Yet calls for fiscal fourth-quarter revenue to come in between $4.975 billion and $5.025 billion didn’t quite live up to growth expectations, and guidance for $4.10 to $4.15 per share in adjusted earnings in the coming quarter showed little growth compared to the just-ended quarter. Investors want signs of Adobe’s growth accelerating further, and until they see those signs, the stock might have difficulty producing gains.
Elsewhere, shares of ASML were down more than 3% early Friday morning. The maker of lithography equipment for semiconductor production saw declines after a key customer suggested that demand might weaken.
News reports overnight suggested that Taiwan Semiconductor Manufacturing had communicated to its suppliers, warning them that the chip foundry would want to delay delivery of previously ordered equipment for producing semiconductor products. That’s consistent with comments that Taiwan Semi management has made recently, with macroeconomic conditions remaining weak in some areas and pointing to less robust projections for the near future.
ASML provides equipment that’s essential in the semiconductor production supply chain, as its lithography prowess is unmatched in the industry. Customers who need cutting-edge chips with the finest level of precision count on ASML to provide the necessary machinery, but if Taiwan Semi indeed slows down its order rate, then it could in turn have a negative impact on ASML’s business.
At this point, most industry analysts expect any slowdown to be short-lived. However, with stocks in the industry having benefited from high demand recently, it’s not surprising to see share prices move lower in response.
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Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends ASML, Adobe, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends the following options: long January 2024 $420 calls on Adobe and short January 2024 $430 calls on Adobe. The Motley Fool has a disclosure policy.
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