AI Stocks: Alphabet & Adobe

AI Stocks: Why Alphabet and Adobe Are Worth Watching

Artificial intelligence (AI) stocks are often perceived as expensive, but Alphabet and Adobe stand out as potentially undervalued investments. Both companies are positioned for strong earnings per share (EPS) growth and are actively integrating AI into their core businesses, making them attractive options for investors.

Despite being priced lower than the S&P 500, which has a forward price-to-earnings (P/E) ratio of 22.1, Alphabet and Adobe are projected to outpace the market with their EPS growth. Over the next two years, both companies are expected to exceed the S&P 500’s typical 10% growth rate, indicating strong financial health and potential for long-term gains.

EPS Growth Projections

Alphabet is projected to achieve EPS growth of 19% in 2025 and 6% in 2026. Adobe’s projections are slightly more modest, with 11% growth in 2025 and 12% in 2026. These projections do not account for the companies’ stock buyback plans, which could further boost EPS by reducing the number of outstanding shares.

"Alphabet and Adobe are both poised for significant growth in the coming years," said John Miller, a senior analyst at TechInsight Research. "Their strategic focus on AI integration and strong financial performance make them standout options in the tech sector."

AI Disruption and Innovation

One reason these stocks may be undervalued is the perceived threat of AI disruption to their primary businesses. For Alphabet, Google Search—its flagship product—faces competition from AI-powered search alternatives. Similarly, Adobe’s graphic design tools could be challenged by AI image generation technologies.

However, both companies are proactively addressing these challenges. Alphabet has introduced AI search options to enhance its core offering, while Adobe has launched Firefly AI, a suite of AI-driven tools designed to complement its existing software. These innovations demonstrate the companies’ commitment to staying ahead of the AI curve.

Financial Performance and Market Position

Despite concerns about AI disruption, both companies continue to perform well. Google Search revenue grew by 10% in the previous quarter, highlighting its enduring strength. Adobe’s software, meanwhile, offers a level of control and precision that generative AI tools may struggle to replicate.

"The market may be underestimating the resilience of these companies," said Sarah Lee, a tech industry analyst. "Their ability to adapt and innovate in the face of AI disruption is a testament to their long-term viability."

Investment Outlook

While Alphabet was not included in The Motley Fool Stock Advisor’s list of the 10 best stocks for investors, both Alphabet and Adobe remain strong contenders. Their robust EPS growth, strategic AI integrations, and solid financial performance make them attractive options for investors looking to capitalize on the AI revolution.

As AI continues to reshape the technology landscape, Alphabet and Adobe are well-positioned to thrive. Investors should keep a close eye on these stocks as they navigate the evolving AI market.