AI Innovations Shape the Future: Focus on Advanced Micro Devices and Adobe

Advancements in artificial intelligence (AI) have created a buzz in the stock market as companies look to capitalize on this technology in 2024. While many major firms enjoyed rising stock prices, not all AI innovators experienced the same success.

Stock prices often climb when a company’s financial outcomes surpass expectations. Conversely, a lackluster quarter or a cautious forecast can lead to declines. For patient investors, this might represent an attractive buying opportunity for the long term.

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In 2024, two firms made notable advances in their AI initiatives, yet their stock prices have fallen as investors await tangible results. Shares of Advanced Micro Devices (NASDAQ: AMD) dropped roughly 43% from their early-year high. Similarly, shares of Adobe (NASDAQ: ADBE) fell around 31% since peaking in 2024. However, both companies might rebound in 2025.

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1. Advanced Micro Devices: Competing in the AI Market

In the competitive landscape of AI, AMD has often been overshadowed by Nvidia. Despite this, its role in AI data center chips is significant and positions it well for future growth.

Throughout 2024, AMD secured partnerships with major tech players like Oracle, Microsoft, and Meta Platforms. This move indicates that these companies are seeking alternatives to Nvidia, which has dominated AI infrastructure.

Notably, AMD’s AI accelerators are proving to be more cost-effective than Nvidia’s for inference performance. As an example, while Meta may use Nvidia chips for training its language models, it could rely on AMD’s chips for running applications.

AMD’s success is reflected in its financial reports, with third-quarter data center revenue soaring 122% year-over-year, outpacing Nvidia’s 112% growth in the same period. This suggests AMD is gaining market share, a trend likely to persist into 2025.

The company is fast-tracking its AI chip development to catch up with Nvidia. New models, including an upgrade to its Instinct MI325X accelerator within the next year, promise enhanced performance. The MI400 line is expected in early 2026.

With strong relationships with tech giants, AMD is positioned for revenue growth in 2025. Analysts project a 54% increase in earnings per share (EPS) the following year, while the stock trades at a relatively low forward price-to-earnings (P/E) ratio of about 24, offering a good opportunity for long-term investors.

2. Adobe: Evolving with AI Tools

Adobe is making strides in integrating AI into its creative and marketing software. One of its standout products is GenStudio, which combines different Adobe applications to enhance marketing campaign development. This tool leverages Adobe’s Firefly generative AI to assist in creating and optimizing advertisements across platforms.

Adobe’s emphasis on safe generative AI gives it a competitive edge. Professionals using its software need to ensure their work adheres to copyright and trademark laws, making Adobe’s services invaluable.

Additionally, Adobe has integrated generative AI in its free Adobe Express software, boosting user engagement and conversion rates as customers explore premium features. The company has also increased prices, creating additional revenue streams through a credit-based system for frequent AI tool users.

Despite these advancements, Adobe faced disappointment over its 2024 financial results. The company reported a $2 billion increase in annual recurring revenue (ARR), while total revenue grew just 11% and costs stabilized.

The 2025 forecast appears lackluster, with expectations of only 11% ARR growth and EPS estimates of $20.20 to $20.50 falling short of analyst predictions.

However, Adobe is well-positioned to capitalize on the increasing demand for AI-driven tools. As more creatives and marketers seek to adopt these technologies, Adobe can command premium pricing, leading to anticipated steady revenue growth and improved profit margins. Currently, the shares trade at less than 22 times the midpoint of the 2025 EPS outlook, making it an appealing buy.

A Chance to Reconsider Investment Opportunities

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*Stock Advisor returns as of December 30, 2024

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Adam Levy has positions in Adobe, Meta Platforms, and Microsoft. The Motley Fool has positions in and recommends Adobe, Advanced Micro Devices, Meta Platforms, Microsoft, Nvidia, and Oracle. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.