By Tae Kim

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An AI Debate. Hi everyone. The rise of artificial intelligence is disrupting industries. It's meant huge opportunity for chip makers and start-ups. But for traditional software companies, the picture is more complicated.

One of the biggest debates on Wall Street revolves around how the AI shift will impact Adobe, the leading provider of software for creative professionals in design, video editing, and digital marketing.

Adobe's stock price has declined by 30% over the past 12 months, as investors wrestle with questions about the company's ability to monetize new AI features and stave off potential disruption from start-up competitors.

Adobe CEO Shantanu Narayen says Adobe is well-positioned to benefit from the AI-driven explosion of digital content, as its software will be essential for editing and polishing this content.

He is confident the company will be a long-term AI winner. In a recent interview with Barron's Tech, Narayen discussed his thoughts on AI, what it means for creative professionals, how Adobe plans to monetize the technology, and his views on competition.

Our discussion about Adobe Acrobat, the company's document management product, was particularly interesting -- and an area of the company that may be overlooked by investors. As corporations look for ways to leverage AI for insights from internal data repositories, Narayen is counting on Acrobat, and Adobe, playing a key role.

Here are edited highlights from the conversation:

Barron's: What do you see as the big trends in AI this year across the technology industry?

Narayen: In 2024, a lot of the conversation was around training and the creation of large language models. While the technical interest is all on who's been creating these models, in 2025 I think you're going to see way more usage and applicability of AI in real-world scenarios. That's what I'm excited about.

It will be about how people are deploying AI in workflows to get value. In that context, Adobe has been ahead of the curve whether it's in our creative products, our document products, or our digital experience products.

How is AI going to impact Adobe's creative professional customers?

Every massive shift in technology, whether it's the move to the cloud, the move to mobile, and now the move to AI, has made our products more accessible. It's made them more affordable. It's expanded the number of customers that we can serve and enabled them to accomplish what they want to do. It's dramatically increased our addressable market opportunity. I think AI will be the same thing.

Every creative wants to do things faster. They want to take a vision or idea and make it available in different forms of media and on different channels. AI is going to expedite that.

There are worries that AI will lead to job cuts and cost cutting. How do you respond to that concern?

With every big shift, people have been apprehensive. There is angst in the system. But by embracing AI, people who use AI will differentiate themselves more than people who don't use AI. Yes, there is disruption, but those who use AI as a tool in their tool chest are going to become better.

It's a reality for the last decade, people will have to differentiate themselves further, so the power, precision, and creativity become even more important.

What is unique about Adobe's AI model strategy?

We have a product called Firefly [a generative AI platform for text to image generation] that is designed to be commercially safe. We can attest to every piece of data that went into training those models. By creating our own models, it helps us control those models better, allowing us to integrate the models within our applications to do incredible things.

Take something like generative fill in Photoshop, which is one of the most widely used features right now. People who have used Photoshop for decades look at generative fill and say, "My God, that's magic."

It's still early days in terms of monetization. How will Adobe better monetize AI over time?

Adobe is in a very unique position to monetize it given the breadth of our products. Acrobat with AI Assistant has a freemium model.

On the creative side, we want people not to worry about consumption for the most part. If you look at what we've done [with subscription models] in Photoshop and Illustrator, it allows you to be focused on creation and not spending a lot of time looking at how much consumption is left.

Video is way more expensive. If you're creating videos, depending on how much you consume, we're going to pass a little bit on to the customer.

We're also monetizing by embracing third-party models where we provide the interface. It's a pass-through; we incur the cost and then pass it on.

What are you doing with Adobe's Acrobat franchise?

We allow you to experience AI with the AI Assistant, so you can have a conversational interface with a PDF [up to 10 PDFs]. Clearly our ambition and our vision is to spread that across multiple documents. Think of that in an enterprise setting, you can have your entire document repository and get value by understanding knowledge management across that.

In the future, you're going to be able to talk to a repository of hundreds of PDFs. That's going to happen, it's something we're working on. If you're a legal person, you can ask what the indemnification clause is and how is it different across contracts. If you're in finance, you can ask to compare and contrast revenue to other companies.

What's the timing?

We've already shown prototypes to people. We'll ship this when it is ready. We're making great progress.

OpenAI and other AI start-ups are increasingly becoming rivals to Adobe. How would you characterize the competition from these new entrants?

I think a lot of them are partners. I think of OpenAI like Windows, iOS or Android, or Macintosh. Across four decades of Adobe's existence, the platform companies have to show capabilities and functionality. Windows has always had some capability to edit images or do creative software. That's not their core reason for being.

Every single platform company says if I can get the best independent software vendors in the world who have specialized functions, it enhances the value of the platform as well. This one will be no different.

Adobe has been a solid double-digit growth company, but the stock price is down 30% over the past 12 months. What is your message to shareholders about the stock price.

I say it's an incredible value right now. If you look at our track record, even for 2024, every single number that we provided at the beginning of the year on both the top and bottom line, we beat.

People are trying to navigate what AI means to different companies. From our point of view, we've innovated more, we delivered more software, and we're increasing our addressable market opportunity. We're an incredibly innovative company, so I'm very enthusiastic about our prospects.

We've been through this journey before when we moved to the cloud. People were wondering what it means for Adobe. We've come out the other side stronger. I certainly believe that will be the same case for AI.

Thanks for your time, Shantanu.

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Write to Tae Kim at tae.kim@barrons.com or follow him on X at @firstadopter.

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January 15, 2025 16:04 ET (21:04 GMT)

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