Adobe (ADBE 2.01%) and Autodesk (ADSK -0.49%) both provide essential digital tools for specific industries. Adobe's Photoshop, Premiere Pro, and Illustrator are widely used by media and design professionals, and it provides e-commerce, marketing, and analytics tools for enterprise customers. Autodesk is best known for its flagship AutoCAD (computer-aided drafting) software for architects and engineers, but it also develops other 3D design and digital prototyping tools.

Over the past decade, Adobe and Autodesk both transformed their desktop software into cloud-based services. That strategy locked their customers into stickier subscriptions, eliminated the fragmentation between different software versions, and widened their moats. It also made both stocks reliable plays on the secular expansion of the cloud software market.

A cutout of a blue cloud next to a laptop computer.

Image source: Getty Images.

I compared these two stocks last June, and I concluded then that Autodesk's steadier growth rates and lower valuation made it a better buy. But the difference in stock performance has been minimal since then: Autodesk's stock has risen about 1% as Adobe's stock has dipped 2%. Let's take a fresh look at both stocks to see if my original thesis still holds up.

Adobe makes a divisive acquisition as its growth cools off

Adobe's revenue grew 15% in fiscal 2020 (which ended in November 2020) and rose 23% in fiscal 2021, but only increased 12% in fiscal 2022. It expects that slowdown to continue with 9% growth in fiscal 2023 as it faces more macroeconomic and currency-related headwinds.

That slowdown wasn't surprising, but it doesn't account for its planned acquisition of the design software firm Figma for $20 billion in a half-cash and half-stock deal. That deal is divisive for three reasons: Adobe's bid values Figma at a whopping 50 times its annual recurring revenue (ARR) of $400 million in 2022, it will dilute its existing shares, and the takeover still faces regulatory challenges across the world -- even though it insists it can close the massive deal by the end of this year.

On the bright side, acquiring Figma will eliminate Adobe XD's toughest competitor in the user interface (UI) design and user experience (UX) space, while strengthening the Digital Media segment, which constituted 73% of its revenue in fiscal 2022. In addition, Figma has already more than doubled its ARR for two consecutive years, and its growth could accelerate significantly when bundled with Adobe's other services.

Adobe expects its adjusted EPS to rise 12%-14% in fiscal 2023 (excluding Figma), compared to analysts' expectations for 13% growth. Based on those estimates, Adobe's stock still looks reasonably valued at 24 times forward earnings.

Autodesk's growth is also cooling off with less drama

Autodesk's revenue rose 16% in both fiscal 2021 and fiscal 2022, then grew 14% in fiscal 2023 (which ended in January 2023). For fiscal 2024, it expects its revenue to rise 7%-9% as it faces many of the same macro and currency headwinds as Adobe. Its sluggish growth in Europe also offset is stronger growth in the U.S. and Asia.

But unlike Adobe, Autodesk didn't make any massive acquisitions during that slowdown. In 2022, it acquired the AR/VR design platform The Wild, the optimization software developer Prodsmart, and the cloud-based digital filmmaking company Moxion, but all three deals were relatively small acquisitions that were made for undisclosed amounts.

Autodesk expects its operating margin to stay roughly flat year over year in fiscal 2024 as it focuses on cutting costs and maintaining healthy renewal rates. By comparison, Adobe's operating margin is expected to decline this year as it juggles the macro and currency challenges with fresh product launches and its planned takeover of Figma.

Autodesk expects its adjusted EPS to rise 5%-10% in fiscal 2024, compared to analysts' expectations for 9% growth. Its stock looks slightly pricier than Adobe's at 27 times forward earnings.

Which stock is the better investment?

It's easy to see why Adobe and Autodesk often trade in tandem: Their business models, growth rates, and valuations are all fairly similar. Both stocks are still good long-term investments on the cloud software market, but I believe Autodesk is the safer investment right now because it's not trying to pull off a massive acquisition.

It makes sense for Adobe to buy Figma, but it could also bite off more than it can chew and suffer severe acquisition indigestion. So once again, I believe Autodesk will be a better buy than Adobe for the foreseeable future.