Two Exceptional Artificial Intelligence (AI) Shares Experiencing Drops of 43% and 31%, Potential Buys to Consider Prior to Recovery in 2025

Two Exceptional Artificial Intelligence (AI) Shares Experiencing Drops of 43% and 31%, Potential Buys to Consider Prior to Recovery in 2025

Progress in artificial intelligence (AI) and the ensuing excitement pushed the shares of prominent global corporations higher in 2024. Nevertheless, not all AI innovators fared as victors.

Stocks surge when financial outcomes surpass projections or at least surpass investor expectations. One subpar quarter or a lackluster outlook can bring about a stock drop. However, such situations can incentivize considerate investors with long-term perspectives to capitalize on these dips.

Two companies made strides in their AI development in 2024, yet shareholders have knocked down the values of both companies, waiting for the rewards of their initiatives. Shares of Advanced Micro Devices (AMD 3.93%) plummeted by approximately 43% from their early 2024 peak. Simultaneously, shares of Adobe (ADBE -2.37%) experienced a decline of around 31% from their 2024 peak. However, a potential turnaround in 2025 could be on the horizon for these AI stocks.

1. Advanced Micro Devices

AMD frequently plays the role of underdog in the realm of GPU construction used for training and developing generative AI applications by major tech firms. Nevertheless, financial analysts should not downplay AMD's relevance when addressing AI data center chips, as it has the potential to carve a share of the bustling market ventures over time.

AMD sealed partnerships with prominent tech giants such as Oracle, Microsoft, and Meta Platforms in 2024, confirming that these hyperscalers plan to constrain Nvidia's influence in the market by sourcing alternative providers for the critical infrastructure that supports AI.

AMD's AI accelerators also provide unparalleled value in terms of efficiency, as they outperform Nvidia's offerings when it comes to inference performance. For example, a company like Meta might utilize Nvidia's chips for training its language model but opt for AMD's chips for applications like Meta AI.

These advancements have been reflected in AMD's third-quarter data center revenue, which increased by 122% compared to the same period in the previous year. This growth surpasses Nvidia's 112% growth in the same sector, suggesting that AMD's market share is expanding. Consequently, this momentum may persist through 2025.

AMD has also boosted its AI chip development efforts to close the gap between its capabilities and those of Nvidia. Its next-generation MI400 accelerator is set to launch shortly, promising substantial performance improvements.

The expanding relationships between AMD and major tech firms should stimulate revenue growth in 2025. This increased revenue should translate into robust earnings growth, but it's essential to consider that analysts predict an EPS growth of 54% for AMD in 2025. However, despite these optimistic expectations, AMD stock trades at a relatively modest P/E ratio of around 24, creating a substantial safety margin for investors expecting strong long-term returns.

2. Adobe

Adobe invested in augmenting its AI-driven features and expanding their applications across its suite of design and marketing software in 2024. Notably, GenStudio, which merges Adobe's creative and marketing software, was introduced to help businesses create and optimize advertising across diverse media and platforms. Utilizing Adobe's Firefly generative AI models and machine learning, this tool assists marketers in generating and optimizing advertising content.

Adobe's focus on commercial-safe generative AI offers a competitive advantage in the market, ensuring that the work produced by its clients does not infringe on any copyrighted or trademarked content.

Adobe has also integrated generative AI tools into its free Adobe Express software to attract more users. Express has seen an upsurge in user numbers, and Adobe reports high conversion rates when selling clients on the possibility of leveraging additional AI features with a paid option. Besides, Adobe's new AI features justify price hikes and drive incremental revenue through its credit-based system, which allows users to make use of AI features more frequently for an extra fee.

Despite investor disappointment with Adobe's financial performance in 2024, the company saw a significant rise in Digital Media annual recurring revenue (ARR) by $2 billion throughout the year. The overall revenue increased by 11% for the year, while the cost of revenue remained relatively stable.

Adobe's forecast for 2025 was also less enthusiastic, with an estimated unreliable annual revenue growth (ARR) increase of 11% and an EPS target of $20.20 to $20.50 that fell short of analyst expectations.

However, Adobe should be able to foster the continued adoption and utilization of its tools over the coming few years, as more creative minds and marketers seek to leverage AI to supplement their organizations. Adobe stands a strong chance of winning this client base, capitalizing on its premium pricing strategy. This should result in steady revenue growth and margin improvement, particularly given management's recent emphasis on profitability enhancement. Given the shares' current trading price, which is less than 22 times the midpoint of management's 2025 EPS forecast, Adobe stock is an enticing investment opportunity.

1. Considering the potential of AMD's AI data center chips and the partnerships it has secured with major tech companies like Oracle, Microsoft, and Meta Platforms, some investors may see AMD as an attractive opportunity for investing in the AI sector, despite its share drop in 2024.
2. Adobe's focus on commercial-safe generative AI and its integration into its free Adobe Express software could attract more users and drive incremental revenue through its credit-based system. This, coupled with the continuous adoption of its tools by creative minds and marketers, may make Adobe stock an appealing investment opportunity for those seeking long-term returns in the AI field.

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