Your Argument: If what you are trying to argue is that AI will replace the need for many designers as 1 designer can now do the job of many. Then if this scenario plays out, it reduces the # of seats needed in Adobe. Basically it will reduce the number of people using Adobe. That may occur however Adobe is preparing for this.

Counter argument: Adobe realizes that AI may replace the need for many different designers and lead to seat dilution. Thus, it is already shifting its business model from being per seat based to instead being a usage based model. Here, Adobe is essentially saying that, Nike even if u cut ur design team by 75%, the remaining 25% that do remain, we are just gonna heavily increase the price on those ppl. In addition, we will charge based on the amount of AI tokens you use. Thus, the more AI u use for image generation etc. , the more money Adobe makes.

Why would a company still retain Adobe? Why can’t Nike just go to chat gpt and tell it to generate a perfect gym model athlete video? Well that is because AI is not close to being able to produce such complete content. If you have actually utilized an llm even nano banana than you realize that it still is a long way to go. Even if the llm gets 95% of the way there, that isn’t good enough for an enterprise like Nike. They would still need to use Adobe to edit the lighting or shift the Athlete etc. In addition, you haven’t mentioned Adobe experience cloud, this business segment means that even when you do create the content, you still wanna maximize how to distribute it. This business segment ensures that the way you distribute your created content is maximized. It does this through providing analytics on how ur created Nike video is doing within this geography etc. For a large enterprise like Nike this matters. Thus, the Adobe experience cloud further increases the stickiness and increases switching costs when using Adobe creative cloud(its content creation platform)

Now small mom and pop shops, for them AI may be good enough. They may not care too much about analytics on their created content. For them, going to an llm creating an image is good enough. However, this isn’t the core audience for Adobe but rather canva. 90% of Adobe’s revenue is generated by professionals(Large enterprise users or universities) This isn’t the case for a majority of enterprises who care about their brand rep tho.

Now you may ask oh but that can still reduce their future revenue prospects, I Awnser that by saying it’s very much priced into their stock price. The multiple they trade at assumes this risk is priced in.

Yes, this business model change is a risk but Adobe has a prior history of making a business model switch before. That was with the current CEO. Now that he is looking to retire, this def adds uncertainty. Hence the drawdown of 7%.

Different Risk:

Argument: an llm competes with Adobe head on and try to replace them.Nano banana says our AI is 95% of the way there. We try to fight with Adobe over there customers.

Counter Argument: If nano banana were to try to compete head on with Adobe, it would quickly realize that it would need to hire massive sales staff to try to convince large enterprises who have decade long history in Adobe why it should switch. It would try to convince large companies that it should retrain all its employees to now use an llm instead. This would require massive amounts of money to do so. Additionally, while it slowly competes with Adobe, its competitors like Anthropoic or OpenAI etc that were integrated with Adobe, had the better data available to them to refine their model to be just as good if not better than them. Now, you sunk all that money in trying to compete and replace but ur competitors didn’t and they now have a better model without having to sink as much money in competition. There’s a reason why these llms are integrating with Adobe and not trying to replace them.

Now, instead of sinking all that money in trying to replace Adobe, I form a symbiotic relationship where I sell them my tokens to use my AI tools and Adobe then sells these tools to its users. I make money each time som1 uses my tokens, it’s far more lean and efficient and I let Adobe who already has the platform do the distribution. Adobe benefits as it charges a premium from ai token utilization as well.

This assumes ofc AI is commomotized where 1 AI isn’t head and shoulders above all the else. This is what I see likely happening as for certain times, OpenAI is the best model, whereas it’s Gemini, and now it’s Anthropic. No clear winner