Advance in artificial intelligence (AI) and the excitement around its potential brought the share prices of some of the biggest companies in the world higher in 2024. But not every AI innovator was a big winner.
Stock prices rise when financial results exceed forecasts, or at least when management expectations are even better than investor sentiment. A disappointing quarter or a disappointing outlook from a company can send a stock down. But this could be a great buying opportunity for patient investors with a long-term outlook.
Two companies have made significant strides in their AI development in 2024, but investors have sent the shares of both as they wait for the real payoff from their efforts. Actions of Advanced Micro Devices(NASDAQ: AMD) are down about 43% from the highs they reached in early 2024. Meanwhile, shares of Adobe(NASDAQ: ADBE) are down about 31% from their 2024 high. But a turnaround in 2025 could be in store for both AI Actions.
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AMD has largely played second fiddle Nvidia when it comes to building GPUs, big tech companies use them to train and develop generative AI applications. But investors should not discount the importance of AMD’s position when it comes to AI data center chips and how it can take part of the booming market over time.
AMD has made several agreements with major technology companies in 2024, including Oracle, Microsoftand Meta Platforms. Which shows that these hyperscalers are trying to keep Nvidia’s dominance in check by sourcing a secondary supplier for the essential infrastructure behind AI.
AMD’s AI accelerators have also proven more cost-effective than Nvidia’s when it comes to inference performance. In other words, a company like Meta could train its large language model using Nvidia chips, but use AMD chips to run applications like Meta AI.
The efforts have been shown in the results of AMD. Third quarter data center revenue increased 122% year over year. That’s even better than Nvidia’s 112% growth in the same segment over the comparable period. This suggests that AMD’s market share is growing. And this growth can continue in 2025.
AMD has accelerated its AI chip development as it looks to catch up with Nvidia’s capabilities. The successor to its Instinct MI325X accelerator will be released in less than a year. And the MI400 line is due in early 2026. Both promise significant performance improvements.
AMD’s growing relationship with large technology companies should help its revenues to accelerate in 2025. It should also translate into very strong earnings growth, but it is worth noting that analysts expect its earnings per share (EPS ) went up 54% the following year. But AMD’s stock trades for a relative bargain compared to growth expectations, with a price-to-earnings ratio (P/E) of around 24. At that price, there is considerable margin security for AMD stock for long-term investors. .
Adobe has taken steps to improve its AI-powered features and expand its use in its design and marketing software suite in 2024. Perhaps the biggest advance came in the form of GenStudio, which combines creative software and Adobe marketing to help companies develop marketing campaigns. It leverages its Firefly generative AI models and machine learning to help marketers create and optimize their advertising across multiple media and platforms.
Adobe’s focus on business-safe generative AI gives it an edge in the market. Creatives who use the company’s advanced software likely do so professionally. As such, it is important that their work does not infringe copyrighted or trademarked materials. The same is true for marketers who work with GenStudio.
Adobe also used generative AI tools in its free Adobe Express software to increase the top of its sales funnel. Express is attracting more users than ever, and Adobe is seeing strong conversion rates as it sells customers on the ability to use more AI features with one of its paid options. In addition to this, Adobe uses its new AI functions as the reason for the price increase and generate incremental revenue through its credit-based system, which allows users to use more generative AI functions frequent for an additional charge.
However, investors were disappointed with Adobe’s financial results in 2024. Adobe’s annual Digital Media Recurring Revenue (ARR), a closely watched metric for the business, increased $2 billion over the course of the year. ‘year. Total revenue increased a relatively modest 11% for the year, while its cost of revenue remained relatively stable.
Adobe’s outlook for 2025 was also somewhat disappointing for investors, as management expects only 11% growth in ARR. Its EPS estimate of $20.20 to $20.50 also missed analysts’ expectations.
But Adobe should be able to consistently increase the adoption and use of its tools over the next few years as more creatives and marketers look to use AI to support their businesses. Adobe is well positioned to win that business, and it can charge a premium price to do so. That should lead to steady revenue growth and margin expansion, especially considering management’s recent focus on improving profitability. With shares currently trading at less than 22 times the midpoint of management’s 2025 EPS outlook, the stock looks like a great buy at this price.
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Randi Zuckerberg, former director of market development and Facebook spokesperson and sister of Meta Platforms CEO Mark Zuckerberg, is a member of the board of directors of The Motley Fool. Adam Levy has positions in Adobe, Meta Platforms, and Microsoft. The Motley Fool has positions 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.
