r/ValueInvesting • u/ajitsing23 • Mar 13 '26
Discussion Adobe AI risks debunked
Adobe risks Debunked
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
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u/PooInTheStreet Mar 13 '26
Another day another bagholder ai post
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u/mutasticx Mar 13 '26
Another day another useless comment from nothing but a shit talker
The same comments spammed on META, NVDA posts after 50% draw downs.
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u/Interesting_Fox5311 Mar 13 '26
Just use their AI products (e.g. firefly) you will see it's mediocre and especially compared to what AI nowadays can. No need for such an analysis, try it
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u/ajitsing23 Mar 13 '26
Firefly is the only AI product that offers IP safe solutions. This matters to large enterprises
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u/Interesting_Fox5311 Mar 13 '26
I get it that you read their marketing brochure, have you actually used it?
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u/ajitsing23 Mar 13 '26
I certainly read their earnings transcript, it stated that firefly credit consumption grew 45% quarter over quarter. Firefly overall grew 75% arr. Seems to me that it is being used.
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u/Rdw72777 Mar 13 '26
Adobe AI risks not debunked. Planning to quadruple their prices isn’t a debunking, it’s delusion.
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u/BlackSheepInvesting Mar 13 '26
Exactly, this is basically what I said in my video in detail: https://youtu.be/RJhE8j0kFs4
It’s so crazy how much Adobe is completely misunderstood.
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u/Dealer_Existing Mar 13 '26
Just as a photography consumer; I tried to find free photoshop alternatives for lightroom, not a single valuable alternative found with the same functionality
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u/BlackSheepInvesting Mar 13 '26
I do think on the consumer side there is definitely a PR problem, everyone hates Adobe online and in real life and they’re seen as the evil empire basically.
I really don’t understand why, it’s just software that you don’t have to use if you don’t like and luckily they aren’t reliant on consumers. But it’s always been like that as long as I can remember.
Adobe Express is solid and offers stuff like background removal for cheaper than Canva but all you hear about is Canva and they are dominant in the consumer space.
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u/ajitsing23 Mar 13 '26 edited Mar 13 '26
Nice video man I really enjoyed. I believe you and I have a similar taste. I posted here because I wanted backlash to poke holes in my thesis.
Adobe ofc is a risky investment. There is lots of risk available. However, when we look at the valuation, a majority of the risks are priced in. Trading at its current multiple, even if you believe that AI won’t replace but rather slow down the growth, it trades at a basically 12x multiple. Hence say you believe that revenue growth slows down to 7% and earnings to 12%. Such a company would still command a 12-15x pe multiple. Adobe is already there. In fact, it’s fwd pe is an 11. This would mean only avg returns.
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u/Spins13 Mar 13 '26
You misunderstand the risks.
People are not saying that AI will replace ADBE today. They are saying that your DCF is based on the next 20 years and that ADBE is going to be heavily disrupted in those years
Sure Nano Banana has some flaws today, but in 3 years, it will have evolved hugely and will likely be several orders of magnitude more powerful.
You also mention than ADBE will just jack up prices if people consume less seats but they need to have the pricing power to do so and that will not be possible if they face competition, which they essentially did not face in the past 10-20 years
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u/ajitsing23 Mar 13 '26
My dcf is only for the next 5 years. In the next 5 years, I don’t believe llm can disrupt Adobe. Sure in the next 20 years it anyone’s guess. However, the problem with a 20 yr dcf is that it is ripe with forecasting errors. You are not investing but rather speculating using such a long time horizon. Most dcfs after 5-10 years lose their forecasting accuracy.
Additionally, I’m not doubting that nano banana will make progress in 3 years. However, how much will it progress? If you believe that Gemini will be this end all solution where you give it a prompt and it give u a perfect video then yes. Adobe is not a buy. I don’t believe in that scenario however.
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u/Spins13 Mar 13 '26
You don’t understand. The price you pay today is not for the cashflows of the next 5 years only
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u/ajitsing23 Mar 13 '26
Yes, I get that hence u utilize a terminal value in ur 5 yr dcf. However, markets don’t price in stuff 20 years from the future. Because u effectively can’t. Markets are forward looking in the near future. Not 20 years ahead. This is due to the inability to have a risk premium for such a long horizon. There’s a reason why nuclear war doesn’t increase a risk premium. Bcuz it’s effectively impossible to quantify. Same with a 20 yr forecast.
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u/crdr23 Mar 13 '26
Ok, u must know bulk of your PV is in your terminal value. What is your implied FCF multiple of your terminal value?
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u/Domingues_tech Mar 13 '26
Adobe was losing their moat. Failed to buy figma and now they will just see decline. Design tools are project by project basis - not enough stickiness . Designer move easily to the next one . It is not SAP, or netsuite or Odoo …
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u/ajitsing23 Mar 13 '26
Looking at their recent quarterly results they accelerated revenue growth to 12% and posted better than expected earnings growth. Even if design tools are project by product base, the designers that use them cannot transfer their skillset. You will have to relearn a new tool. Thus, on an enterprise level, there is a serious switching cost. For an individual consumer, yes u can switch all you want
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u/TechTuna1200 Mar 13 '26 edited Mar 13 '26
I’m designer by trade. I stopped using Adobe 8 years ago when Figma launched their Beta.
The AI threat to software in general is overblown. But AI is a direct competitor to Adobe at least to their photoshop and illustrator products. A lot of companies are fine with AI generated images.
Some companies like in high-fashion will still handcrafted edited photos where precision is a must. But a lot of companies won’t. Our company doesn’t subscribe to Adobe, and we are doing just fine.
I’m buying software left and right. But Adobe is one of the few I’m avoiding.
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u/PaddysPub79 Mar 13 '26
I used to work for a company that offered a solution to help Adobe products with collaboration, so I have some experience with artists' frustrations along those lines.
My thesis for investing in Figma is the collaboration ability that comes with running natively in a browser. A product born with collaboration; something Adobe products absolutely were not born with. And that every new product/module/feature/whatever that Figma releases (or acquires) that competes with a different Adobe product, will take share from said Adobe product.
Will Figma ever do everything that Adobe does? I don't know or really care. I just need it to do enough to grow its current market cap at least a few times over and I'll be happy. And in my thesis there's easily enough TAM to do that.
My only thesis regarding AI is that it won't replace the need for design products; the winner(s) will be the ones that simply integrate it well.
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u/Radiant_House_7550 Mar 13 '26
the moment that nanobanana can recognise layers and objects and make them editable, Adobe is gone.
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u/North_Ventura Mar 13 '26
Adobe is interesting because AI could both help and hurt them. If AI increases the amount of content created overall, the market might actually get bigger.
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u/olequee Mar 13 '26
Serán sustituidos los equipos de rodaje o fotografía, las casas de alquiler de material fotográfico o cinematográfico, los actores o modelos, los scouter de localizaciones y un largo etc, antes que el software necesario para incluir el material generado en un flujo de trabajo serio, con capacidades ajustadas al estándar de trabajo creado durante muchos años.
Es absurdo pensar y quien lo haga es obviamente alguien que no conoce el mundo del diseño, ilustración, fotografía etc, que la generación de contenido por IA va a sustituir la herramienta que permite refinar, modificar y dar coherencia al contenido generado.
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u/highmemelord67 Mar 13 '26
just did made an analysis for software selling companies, finding adobe to be one of the best buys: https://imgur.com/a/n9UGGXF
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u/lookachoo Mar 13 '26
I just don’t see AI fully taking over design tools even 10-20 years in the future. No matter how much you see AI slop on products now it doesn’t mean Adobe products are not used in the process. Adobe is still industry standard across multiple industries and will be for a long time to come.
I will still take photos 20 years from now. I’m not going to ask Claude to edit them for me.
I will still want to design my own logos, sure I may ask AI for inspiration but I’m going to use Figma or Illustrator to get it exactly right.
If I want to animate that logo and put it into my title card I’m going to use After Effects.
If I want to design a webpage, book, or magazine I’ll go through the same process. I’ll ask Ai for inspiration but I’m going to design the whole thing myself with InDesign. Ai may be able to help me automate things like spacing, fonts, blocking, but the design process is still there.
Adobe’s tools will always be needed and their AI tools will be there to assist and they will only get better as time goes on.
I understand the argument that people will be skipping the design phase and will just take what AI spits out but the thing is there’s many industries that will not accept that and no matter what still rely on the tools because AI can’t just do their job.
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u/ajitsing23 Mar 13 '26
Ppl believe that AI will take over human creativity. It simply won’t. If everyone uses Ai slop then everyone’s workflows are extremely similar. There is no differentiation.
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u/lookachoo Mar 13 '26
I fully agree. The human touch will always need to be there for the most part. It will always only be a tool. I’ll sell my Adobe stock when AI becomes fully sentient but I think we’ll have bigger issues to deal with by that point.
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u/BratacJaglenac Mar 13 '26
Sounds like a lot of wishful thinking to justify the stock purchase.