Alphabet GOOGL and Adobe ADBE are infusing artificial intelligence (AI) into their core offerings. While Alphabet is adding AI to its search and cloud services, Adobe is incorporating AI into its creative products. 

According to IDC, global spending on AI-supporting technologies will surpass $749 billion by 2028. IDC expects 67% of the projected $227 billion AI spending in 2025 will come from enterprises embedding AI capabilities into their core business operations. This bodes well for both Alphabet and Adobe stocks.

However, both stocks have suffered from challenging macroeconomic conditions and volatility related to higher tariffs. Year to date, Alphabet shares have lost 12.2%, underperforming Adobe’s drop of 6.2%.

GOOGL and Adobe Stock’s PerformanceZacks Investment Research

Image Source: Zacks Investment Research

So, Alphabet or Adobe, which is a better buy under the current scenario?

The Case for Alphabet Stock

Alphabet’s initiatives to infuse AI in Search are noteworthy. At the end of the first quarter of 2025, Circle to Search was available on 250 million devices, with usage increasing roughly 40% during the quarter. Since October 2024, monthly visual searches with lens have increased by 5 billion. AI Overview is currently used by more than 1.5 billion people monthly. The addition of AI mode expands AI Overview’s advanced reasoning, thinking and multimodal capabilities.

Google Cloud is becoming a preferred choice for enterprises planning to deploy AI agents thanks to the Agent Development Kit and a low-code tool offering Agent Designer. Meanwhile, the Google-Wiz combination offers security solutions that are supported on multi-cloud and are expected to tackle threats emerging from the advancement of AI, prevent breaches and help enterprises respond to breaches more efficiently.

However, GOOGL is suffering from a lack of capacity, and until new capacity comes online this year, cloud revenues are expected to witness increased variability. Regulatory headwinds like the lawsuit between the Department of Justice and GOOGL over Google Search are a concern. The DOJ argues that Google has inked anticompetitive deals with Apple and other companies for prime placement of its search engine and plans to break up Google to separate products like Chrome, Search, and Android. DOJ’s proposal doesn’t bode well for Alphabet, given growing competition from AI-powered products like ChatGPT, Grok, DeepSeek, Perplexity and Meta AI.

The Case for Adobe Stock

Adobe’s AI business is minuscule compared with the likes of Microsoft and Alphabet. Nevertheless, Adobe has expanded its AI portfolio with Adobe GenStudio and Firefly Services, which help brands and their agency partners collaborate on marketing campaigns. 

Adobe launched Firefly Video Model-powered Generative Extend in Premiere Pro, which leverages AI to instantly generate and expand the length of video and audio clips. Adobe introduced a new version of After Effects with a high-performance preview playback engine, powerful new 3D motion design tools and HDR monitoring. New Frame.io V4 upgrades include expanded storage that scales with teams.

Adobe plans to monetize standalone subscriptions for Firefly through the introduction of multiple Creative Cloud offerings that include Firefly tiering. Adobe plans to invest in its sales capacity to deliver Adobe-wide offerings across business, education and government. The integration of AI Assistant in Acrobat, Reader and Express bodes well for Adobe’s prospects. 

Adobe’s new AI book of business (more than $125 million exiting the first quarter of fiscal 2025) was a roughly low single-digit percentage of total revenues ($4.23 billion in the fiscal first quarter). ADBE expects this AI book of business to double by the end of fiscal 2025.

Story Continues

GOOGL Earnings Estimate Revision Positive, ADBE’s Goes South

The Zacks Consensus Estimate for GOOGL’s 2025 earnings is pegged at $9.43 per share, up by 8% over the past 30 days, indicating a 17.29% increase over 2024’s reported figure.

Alphabet Inc. Price and ConsensusAlphabet Inc. Price and Consensus

Alphabet Inc. price-consensus-chart | Alphabet Inc. Quote

The consensus mark for Adobe’s fiscal 2025 earnings has declined by a penny to $20.36 per share over the past 30 days, suggesting 10.53% growth over fiscal 2024.

Adobe Inc. Price and ConsensusAdobe Inc. Price and Consensus

Adobe Inc. price-consensus-chart | Adobe Inc. Quote

Both GOOGL’s and ADBE’s earnings beat the Zacks Consensus Estimate in all the trailing four quarters. However, Alphabet’s average surprise of 14.64% is better than Adobe’s surprise of 2.53%, reflecting the good quality of earnings beat on a consistent basis.

Valuation: GOOGL is Cheaper Than ADBE

Both Alphabet and Adobe are overvalued, as suggested by the Value Score of C and D, respectively. 

In terms of forward 12-month Price/Sales, Alphabet shares are trading at 5.98X, lower than Adobe’s 7.27X.

GOOGL and ADBE ValuationZacks Investment Research

Image Source: Zacks Investment Research

Conclusion

Despite regulatory headwinds, Alphabet is riding on strong cloud and search growth. Its dominant position in the search engine market is a strong growth driver. Alphabet surpassed 270 million paid subscriptions with YouTube and Google One as key drivers. However, Adobe is suffering from the negative impact of stiff competition in the AI and Generative AI space as well as a lack of monetization of its AI solutions.

Currently, Alphabet has a Zacks Rank #3 (Hold), making the stock a stronger pick compared with Adobe, which has a Zacks Rank #4 (Sell). 

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Adobe Inc. (ADBE):Free Stock Analysis Report

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This article originally published on Zacks Investment Research (zacks.com).

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