Adobe Inc. (NASDAQ:ADBE) and Autodesk, Inc. (NASDAQ:ADSK) have something unusual in common. Both are excellent software companies that have been punished by investors for fears that artificial intelligence could make their products less valuable.
But the threat is not really the same.
Adobe’s biggest problem is that AI can make it dramatically easier to create images, videos, designs, and documents. Some of the work that once required expensive professional software can now be done with a prompt.
Autodesk faces a different situation. Its software helps engineers, architects, manufacturers, and construction companies design things that eventually have to exist in the real world. AI can make those workflows faster, but it does not eliminate the need for precise engineering software.
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Adobe has to prove that AI is a growth story, not a disruption story
Adobe’s business is still remarkably strong.
Revenue grew 12% year over year in its latest quarter, while subscription revenue grew 14%. Adobe also crossed 1 billion monthly active users across its products. More importantly, its AI-first annual recurring revenue, or recurring revenue tied directly to newer AI products, surpassed $650 million and grew more than 150%.
The problem is that investors aren’t convinced yet.
Adobe is increasingly giving users free access to products such as Firefly and Express in an effort to attract a much larger audience. That has helped push its creative freemium user base above 100 million, but it also means some users who might once have paid Adobe are now entering through a free funnel. Management expects the monetization of those users to show up later.
That is a risky bet. Adobe Inc. needs AI to increase the value of its ecosystem faster than it reduces the value of the underlying software.
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There are encouraging signs. Firefly, Adobe’s generative AI platform, is being embedded into Photoshop, Premiere, and other Creative Cloud products. Adobe is also building AI agents that can handle repetitive creative and marketing tasks rather than simply generate an image or paragraph.
But competitors are coming from every direction, from AI startups to cheaper creative tools. That is why the market has become so skeptical despite Adobe continuing to grow.
Autodesk may have the better AI defense
Autodesk’s AI story is less flashy, but I think it may be easier to defend.
The company’s software sits inside architecture, engineering, construction, and manufacturing workflows. These aren’t just creative outputs. They are buildings, factories, machines and infrastructure.
That gives Autodesk something many AI companies do not have: context.
Autodesk is trying to connect design, construction, manufacturing and operations into one continuous flow of information. Its recent $3.6 billion acquisition of MaintainX is part of that strategy, bringing maintenance and operational data into the platform.
If Autodesk, Inc. knows how something was designed, how it was built, and eventually how it performs in the real world, AI has much more useful information to work with.
Management calls this “project intelligence.” In simpler terms, Autodesk wants to understand the entire life of an asset rather than just the design stage.
That could become a genuine competitive advantage.
The company’s latest quarter showed that this isn’t just an AI story on a slide. Revenue grew 16%, operating margins expanded, and management raised its full-year outlook.
So which stock is the better comeback?
This is where the valuation changes the answer.
Adobe is clearly the cheaper stock. At 8.73x forward earnings, the market is already assuming that its growth will slow and that AI will put pressure on its traditional businesses.
Autodesk at 17.61x is asking investors to pay more for a company whose AI strategy arguably has fewer obvious ways to undermine its core franchise.
Autodesk’s business story looks like a more compelling case.
The more complicated the physical world becomes, the more valuable precise design, engineering, and operational data could become. Autodesk is trying to make that data more useful with AI, rather than simply defending software against AI-generated alternatives. Its management argues that the combination of industry data, context and engineering expertise can create an advantage that gets stronger as more workflows connect.
Adobe has a much harder job. It has to convince investors that AI will expand the creative economy enough to offset the possibility that AI also makes creative software easier to replace.
That said, Adobe shouldn’t be dismissed at this valuation.
If its free users eventually convert into paying customers, while Firefly, Acrobat AI and its enterprise AI products become meaningful sources of incremental revenue, 8.73x forward earnings could look almost absurdly cheap in hindsight.
The verdict
Adobe is much cheaper, but that alone does not make it the better buy. Autodesk trades at 17.61x forward earnings, which does not look expensive if its AI strategy and broader platform start paying off. Adobe has more room for upside if AI turns out to strengthen its business, but Autodesk may have the stronger position to defend.
Market Sentiment
According to Insider Monkey’s database, 81 hedge funds held Adobe in Q2, down from 86 in Q1, while the value of their positions fell from about $5.70 billion to $4.14 billion. Autodesk saw a sharper decline in ownership, with 51 hedge funds holding the stock in Q2 versus 67 in Q1. The value of those positions also dropped from $3.17 billion to $2.28 billion.
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This article is originally published at Insider Monkey.
