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Will OpenAI’s Sora Kill ADBE Stock?

ADBE stock v.s. OpenAI.

Very recently, OpenAI shocked the entire world when it revealed its newest AI tool, Sora, an extremely impressive tool capable of transforming text prompts into captivating and realistic videos. The boundaries of what OpenAI can achieve seem to be expanding at an unprecedented rate, first with text-to-image conversions, and now with text-to-video magic. Some investors are wondering where there is even a limit to what OpenAI can do.

This sentiment was clearly felt by Adobe (NASDAQ: ADBE) shareholders, with ADBE stock dropping as much as 12% when Sora was revealed. As Adobe takes its time to come up with a response to Sora, there’s another industry player that stands to benefit immensely from OpenAI’s relentless pursuit of AI advancements, and that company is Intel (NASDAQ: INTC).

OpenAI’s Sora

Maybe you’ve already seen the viral video of golden retriever puppies playing in the snow, and you might have been surprised to find out it wasn’t a real video, but one generated by OpenAI’s new tool, Sora.

The videos Sora makes are very realistic – some might even say too realistic. Still they have some errors in them but these are difficult to notice since Sora creates videos where everything is moving at the same time. While, Sora is not available for public use yet, OpenAI shared that it can generate videos up to a minute long and this was enough to affect ADBE stock.

ABDE stock

It appears, investors are already pricing this new competition in since ADBE stock is still down 5.8% since this new tool was revealed. Now the question is whether Sora can replace Adobe and if so, how long does Adobe have left before Sora overtakes it.

Why is Sora Considered a Threat to ADBE Stock?

Adobe is famous for video editing software like Adobe Premiere Pro, which includes AI features like Auto Reframe and Scene Edit Detection. These automatically convert existing video clips into different aspect ratios and can analyze an edited clip to break it into smaller clips. Yet, these AI features are not able to generate a video from a text prompt like Sora.

When it comes to generative AI, ADBE has Adobe Firefly, which can generate images from text prompts and automatically add or remove objects. Unless Adobe is able to swiftly upgrade Firefly, consumers will begin to wonder why they should buy Adobe’s products when OpenAI has two products – Sora and ChatGPT – that do the same things and more for just one subscription.

A Market Overreaction?

Despite this, Sora may not be a threat to Adobe just yet.

With a market cap of nearly $245 billion, Adobe is the leader when it comes to photo and video editing software. Its 2023 Q4 results marked a new record for the company, as it generated over $5 billion in revenue for the first time. This was a 13% increase YoY, and its GAAP EPS reached $3.23 representing 28% growth YoY. Looking at its results for the full fiscal year, Adobe had $19.41 billion in total revenue, representing 13% annual growth with a GAAP EPS of $11.82.

Clearly, Adobe is in a strong position and its decision to invest heavily in AI technologies will help it presrve its economic moat. Right now, Adobe is investing in AI to develop micro-interactions in websites and digital products to enhance user experience and engagement. The company also announced plans to use AI to improve the accessibility of digital content using automatic image description generation and video captioning to make content accessible for people with disabilities.

Even though the company suffered a setback when its attempted acquisition of Figma was blocked, Adobe is still committed to generative AI, particularly with Firefly. Adobe’s focus on this key growth area, may ultimately decide whether Sora overtakes Adobe or not.

Yet, its difficult to overlook how OpenAI beats Adobe since its offerings don’t even need editors. Any user can design a logo with simple text prompts or create a video. While this is undoubtedly a key driver of Sora’s success, Adobe’s advantage may lie in its distribution.

In 2024, Adobe recorded 29.5 million active subscribers of Adobe Creative Cloud, which includes Photoshop and Premiere Pro. These products are used by over 90% of the world’s creative professionals. Thanks to this firmly established customer base, when Adobe releases a new product its existing users will simply adopt it, also the stickiness of its products will help prevent or delay its replacement with other products.

Given Adobe’s forays into the generative AI space, and its leading position in this market, it seems likely that it will release a product, whether its Firefly or something else, to compete with Sora.

OpenAI x Intel Partnership?

While Adobe may be on the negative side of OpenAI’s push to develop new AI technologies, on the positive side is another company – Intel

The CEO of OpenAI, Sam Altman, recently made headlines when he appealed for up to $7 trillion to develop silicon-chip manufacturing capacity to power artificial intelligence. This $7 trillion is equal to more than 20% of the United States’ GDP.

Altman not only made headlines for this incredible sum of money, but more importantly for his statements that the chip industry currently lacks what is necessary to support the development of data centers and infrastructure. The person who brought AI to the masses saying that the chip industry is lagging behind caught a lot of attention.

Even though this price tag may seem absurd, if the US is to emerge as the chip industry’s global leader, then the investment must be massive. According to Altman this is actually his goal, which is why the scale of this undertaking would require OpenAI to take on partnerships to achieve it. Similarly, Intel aims to be the West’s leading chip manufacturer. Which is why Intel’s foundry event in San Jose was so important.

Altman, the CEO of Microsoft (NASDAQ: MSFT), US Secretary of Commerce Gina Raimondo, and a host of global semiconductor business leaders from Arm Holdings (NASDAQ: ARM) to Broadcom (NASDAQ: AVGO)attended. And during the event, Intel provided important updates on its foundry strategy. While still small, in Q4 2023 this business segment saw a 63% increase in revenue YoY.

Additionally, Intel’s lifetime deal value for its foundry business is now over $15 billion, indicating strong growth potential in areas like advanced packaging. It’s also likely that industry giants like Nvidia and Qualcomm will partner with Intel for packaging and/or wafer capacity.

Intel is the US market leader when it comes to advanced packaging – the process by which multiple devices are merged and packaged as a single electronic device. The need for foundry and advanced packaging is expected to increase with the rise of AI, because advanced packaging is a lever to enhance overall chip performance beyond traditional geometric scaling on transistors.

If OpenAI’s plans for transforming the supply chain for AI and chip technologies become a reality, Intel could greatly benefit. Considering their shared goals and abilities, it seems likely that OpenAI will partner with Intel in the future.

ADBE Stock Forecast

Overall, the introduction of Sora does not necessarily mean the end of Adobe or catastrophe for ADBE stock. In fact, those bullish on Adobe’s investments in the field of AI could take this dip as an opportunity to go long. But that does not mean that Adobe’s current lead is garaunteed.

The future of ADBE stock depends on the company’s next moves. If it is to preserve its moat it will need to make significant investments to play catch up with Sora. Its strong userbase gives Adobe some leeway as it finds its path forward now that its deal with Figma has been blocked.

As for Intel, investors should keep a close eye on its foundry business which could rise to the occasion presented by Sam Altman and others leading developments in AI. While the future of AI and the United States’ position in this technological revolution will depend on the actions of not just industry leaders, but regulators as well, it appears as if the foundation is set.


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