Alphabet and Adobe are integrating artificial intelligence (AI) into their core offerings. While Alphabet enhances its search and cloud services with AI, Adobe focuses on incorporating it into its creative tools.
According to IDC, global investment in AI support tech is projected to exceed $74.9 billion by 2028. IDC estimates that 67% of the $227 billion expected to be spent on AI by 2025 will come from companies integrating AI into their primary operations. This could signal positive trends for both Alphabet and Adobe stocks.
Despite this, both companies face challenges from broader economic conditions and volatility due to rising tariffs. Year-to-date, Alphabet’s stock has dipped 12.2%, while Adobe has seen a smaller decline of 6.2%.
Google and Adobe Stock Performance
Image Source: Zacks Investment Research
So, is it a better investment to go with Alphabet or Adobe in the current climate?
Alphabet’s Position
Alphabet’s initiative to integrate AI into its search functionalities is noteworthy. By the end of Q1 2025, its Circle to Search feature was accessible on 250 million devices, marking a 40% increase in a single quarter. Since October 2024, visual searches leveraging AI have surged by 5 billion monthly. Currently, over 1.5 billion users engage with its AI tools each month. This integration enhances AI’s reasoning, thinking, and multimodal capacities.
Google Cloud has emerged as a promising option for businesses looking to implement AI agents, thanks to tools that facilitate agent development. Additionally, the Google-Wiz partnership aims to provide enhanced security solutions that address risks tied to advancements in AI, enabling businesses to respond to threats more effectively.
However, Google is dealing with limitations in capacity and may see cloud revenue growth only once new capacity becomes available this year. There are also regulatory challenges, such as a lawsuit from the Department of Justice regarding alleged anti-competitive practices involving search engine placements. The DOJ’s recommendations could lead to the division of Google into separate entities like Chrome and Search, posing competitive threats amidst the growing landscape of AI products like ChatGPT and others.
Adobe’s Position
Adobe’s AI initiatives are relatively minor when compared to giants like Microsoft and Alphabet. Nevertheless, it has expanded its AI offerings with tools like Adobe Genstudio and Firefly Services.
Recently, Adobe unveiled a Firefly video model integrated within Premiere Pro, allowing for quick composition and length adjustments for video and audio clips. It also rolled out a new iteration of After Effects featuring advanced tools for 3D design and HDR monitoring. The frame.io V4 upgrade offers increased storage, accommodating team scalability.
Adobe intends to capitalize on its Firefly service through various creative cloud offerings, aiming to enhance sales capabilities across business, education, and government sectors. The integration of Acrobat AI Assistant with Reader and Express looks promising for Adobe’s future.
Although Adobe’s new AI business has generated over $125 million (excluding Q1 of fiscal 2025), it remains a small fraction of its total revenue of $4.23 billion. Adobe is optimistic that its AI business will double by the end of fiscal 2025.
Revenue Estimates
Zacks Consensus reports estimate Alphabet’s revenue at $9.43 per share for 2025, reflecting an 8% increase over the past month and a 17.29% increase from 2024 projections.
In contrast, Adobe’s revenue estimate for 2025 slightly decreased to $20.36 per share, suggesting a 10.53% growth from the previous fiscal year.
Both companies exceeded Zacks consensus estimates in their last four quarters, but Alphabet enjoyed a more substantial average surprise of 14.64% compared to Adobe’s 2.53%.
Valuation Insights
Both Alphabet and Adobe appear overvalued, reflected by their respective C and D value scores.
In terms of price-to-sales ratio over the past year, Alphabet trades at 5.98 times compared to Adobe’s 7.27 times.
Conclusion
Despite regulatory challenges, Alphabet is benefiting from robust growth in its cloud and search services, holding a strong position in the search market which drives growth. With over 270 million paid subscriptions through services like YouTube and Google One, Alphabet looks set for further progress. Conversely, Adobe seems to be grappling with fierce competition in the AI realm and struggles with monetizing its AI solutions.
Currently, Alphabet has a Zacks Rank of #3 (Pending), indicating a more favorable stock choice compared to Adobe, which holds a Zacks Rank of #4 (Sell).
Here you can see the comprehensive list of today’s stocks ranked #1 (Strong Buy) by Zacks.
