Here’s Why Berenberg Sees More Upside on Autodesk Stock Despite Key AI Headwinds

Autodesk Inc. (NASDAQ: ADSK )'s core business is growing at a healthy pace, profitability is improving, and management is confident about the long-term outlook. These are some of the factors that prompted Berenberg to reiterate a Buy rating on the stock on September 1, even as it trimmed its price target to $333 from $335.

The positive stance signals the research firm's confidence in the company's outlook following an impressive second quarter. Revenues increased 16% year over year to $2.05 billion, while billings increased 10% to $1.85 billion. Revenue exceeded the high end of guidance, powered by strong gains in key areas of Architecture, Engineering, Construction & Operations (AECO).

Improving Profitability Strengthens the Bull Case

Profitability is increasingly becoming one of Autodesk's major strengths. The company's non-GAAP operating margin increased to 41%, while non-GAAP earnings per share came in at $3.30, comfortably above Wall Street expectations of $3.12.

Autodesk is also generating substantial free cash flow. Free cash flow increased 24% year over year to $561 million, illustrating the company's ability to convert its recurring revenue base into significant cash generation.

Another positive indicator is Autodesk's current Remaining Performance Obligations (RPO), which increased 12% to $5.25 billion in the second quarter. The growth provides investors with greater visibility into future revenue and underscores the strength of Autodesk's subscription-based business model.

On September 1, Citi hiked its price target on the stock to $276 from $269, impressed by the solid second-quarter results. However, the research firm maintains a neutral rating, noting that there are few catalysts to accelerate organic growth compared with peers.

The competitive landscape is also changing rapidly.

In the past, Autodesk Inc. (NASDAQ:ADSK) primarily competed against traditional computer-aided design and engineering software companies. Today, however, the company encounters growing competition from AI-native design tools and cloud-native engineering platforms. Large technology companies incorporating AI into their productivity software are also increasing competitive pressure.

The second-quarter billing figures emphasize another concern. While revenue increased 16%, billings grew by only 10%. Revenue can remain strong for some time because of Autodesk's large recurring subscription base, but slower billing growth may indicate less acceleration in new bookings and future demand.