Adobe vs Microsoft: Choosing the Best Long-Term Generative AI Investment

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Ah, the age-old question: Adobe or Microsoft? Both tech behemoths have been making moves in the generative artificial intelligence (AI) market, which includes popular offerings like chatbot ChatGPT and art generators Midjourney and DALL-E. So, which one should you bet on for a long-term AI play? Let’s dive in, shall we?

Adobe has recently unleashed Firefly, a generative AI platform for the Creative Cloud. This nifty tool allows users to create images, videos, and digital models with just a few text-based prompts. Meanwhile, Microsoft has cozied up to OpenAI, the creator of ChatGPT and DALL-E, and already integrated ChatGPT into its Bing search engine and Azure cloud infrastructure platform. Bing Image Creator also lets users create AI-generated images through DALL-E.

While these AI endeavors haven’t exactly set the revenue charts ablaze for Adobe or Microsoft yet, both stocks have seen a more than 30% uptick since the start of the year. Thanks, AI hype!

Over the past decade, both companies have successfully transitioned their desktop-based applications to cloud-based services and mobile apps, effectively locking in customers with stickier subscription plans. But that’s where the similarities end. Adobe’s bread and butter lie in its Creative Cloud suite, while Microsoft makes its money from Windows, Office 365, and Azure, with a side hustle in Xbox gaming and Surface devices.

In the race for acquisitions, Adobe is eyeing Figma, a rising star in the UI/UX design market, for a cool $20 billion. Microsoft, on the other hand, is attempting to snag video game giant Activision Blizzard for an eye-popping $69 billion to bolster its Xbox business. However, that deal is up against some serious regulatory roadblocks.

So, which of these two is the growth champ? Adobe’s revenue is projected to increase by 9% in fiscal 2023, while Microsoft’s is expected to rise by 7%. Adobe’s adjusted earnings per share (EPS) are predicted to grow between 12% and 14% this year, while Microsoft’s adjusted EPS is only slated for a 5% bump. Valuation-wise, they’re neck and neck, with Adobe and Microsoft trading at 27 and 29 times forward earnings, respectively.

Now, let’s cut to the chase: who’s the better AI play? While both companies make for solid long-term investments, I’m putting my money on Adobe. Firefly has the potential to revolutionize its already market-dominating Creative Cloud suite.

Microsoft’s ChatGPT may be a neat addition to Bing, but let’s be honest Bing’s still playing second fiddle to Google in the search market. Google’s also launched its own generative AI service, Bard, to give ChatGPT a run for its money. And Microsoft’s Azure? It’s still lagging behind Amazon Web Services (AWS), which recently unveiled Bedrock, its own platform for building and scaling generative AI services.

In a nutshell, it’s all about the competition. Adobe’s Creative Cloud and Firefly face smooth sailing with minimal rivals in sight, while Microsoft’s AI upgrades are just helping it keep up with Google and Amazon. So, if generative AI is your game, Adobe’s the name.

Source: www.fool.com