Tech Giants in the AI Era: Successful Transformation Strategies of Google and Adobe

Analyzing how Google and Adobe are integrating AI into their core businesses and enhancing investment appeal amid the AI revolution.

Google: Perfect Harmony of AI Search and Cloud

Although Google faced concerns that ChatGPT would threaten its search business, it has instead built an even stronger position by weaponizing AI.

AI-Integrated Search: Gemini Counterattack

Google has integrated its Gemini AI model into search, providing conversational search experiences beyond simple keyword matching. The AI Overview feature delivers synthesized answers from multiple sources for complex queries, significantly improving user satisfaction.

Evolution of Search Advertising: Contrary to concerns that AI search would reduce ad revenue, Google is developing new formats that naturally integrate ads within AI answers. Q2 2024 search ad revenue grew 14% year-over-year.

Google Cloud: Hidden Winner in AI Infrastructure

While Google Cloud Platform ranks third after AWS and Azure, it shows unique strengths in AI workloads.

Vertex AI: Enables enterprises to easily build and deploy their own AI models. Particularly, TPU is gaining attention as an alternative to Nvidia GPUs, optimized for AI training.

Accelerating Growth: H1 2024 revenue grew 29% year-over-year, with improving operating margins.

Valuation: Reasonably Priced AI Play

P/E ratio of around 25x is relatively undervalued compared to Nvidia at 60x and Microsoft at 35x. Search advertising remains a stable revenue source generating over 200 billion dollars annually.

Adobe: Leader in Creative AI

Adobe has dominated the creative software market with Photoshop, Illustrator, and more. In the AI era, it is further solidifying this dominance through Firefly AI.

Firefly AI: Differentiation in Generative AI

Adobe Firefly goes beyond simply generating images, perfectly integrating with existing Adobe products to revolutionize professional workflows.

Copyright Safety: Unlike Midjourney and Stable Diffusion, Firefly is trained only on Adobe Stock and public domain images, eliminating copyright risks. This is a crucial differentiator for enterprise customers.

Professional Integration: Firefly features like Photoshop Generative Fill and Illustrator Text to Vector naturally blend into existing tools, maximizing productivity.

Subscription Model: Predictable Growth

Since transitioning to subscription model in 2013, Adobe has been generating stable recurring revenue.

High Renewal Rates: Creative Cloud maintains customer retention rates above 90%. For creative professionals, Adobe is an irreplaceable tool.

Pricing Power: With AI feature additions, Adobe is introducing premium tiers and increasing average revenue per user. Firefly credit-based billing creates new revenue streams.

Competitive Advantage: Ecosystem Power

While low-cost alternatives like Canva exist, Adobe integrated ecosystem remains unparalleled in the professional market. Adobe formats like PSD and AI are industry standards, and Adobe Experience Cloud generates over 10 billion dollars annually.

Investment Strategy: Buy Both

Google - Strong Buy

Target price suggests 20-25% upside from current levels. Investment points include AI search integration, cloud growth, and undervalued valuation. Risks include regulatory concerns and AI search impact on ad revenue.

Adobe - Solid Buy

Target price suggests 15-20% upside from current levels. Investment points include Firefly AI success, subscription model stability, and high barriers to entry. Risks include intensifying competition and reduced enterprise subscriptions during recession.

Conclusion

Google and Adobe are companies that have deeply integrated AI into core products, not merely as add-on features. Both amplify existing business strengths with AI and trade at reasonable valuations.