The notional short position in Adobe has climbed 52% since last August, now above $4B. The increase tracks with three straight post-earnings price drops, limited AI monetization and churn concerns. While the company’s creative dominance remains intact, market positioning tells a different story—one that reflects skepticism over pricing power, seat compression, and platform trust. This note unpacks those concerns, as reflected in the rise in short interest ahead of Q2 2025 earnings.

Short build-up: Notional short interest up 52% since last August on soft forward guidance and falling share price.

Discounting signals: Deep retention offers hint at churn pressure and soft ARR.

License compression: Generative tools streamline work but may shrink monetizable user base.

Trust drag: TOS backlash and narrow model scope raise adoption risks.

Short Interest Trends

On the eve of Adobe’s Q2 2024 earnings announcement on June 14th of last year, short interest in the firm’s shares stood at 6.8M shares, a notional value of $3.5B. The firm’s Q2 earnings surprised to the upside and the share price increased by 14.5% the next day. That kicked off two months of short covering which took the short interest down to 5.1M shares with a notional value of $2.6B on August 6th, 2024. That was the low point in both metrics over the last 12 months. From the low in August 2024 to the present, the notional short value has increased by 52%, driven by a doubling in shares short and a 25% price decline. The three earnings reports during that span have seen negative reactions from the market, with one day results following earnings of -8%, -14% and another -14% for Q3 2024, Q4 2024 and Q1 2025, respectively.

The increase in shorting has coincided with continued AI product rollouts and relatively soft 2025 revenue guidance, affirmed in the Q1 2025 earnings report released on March 12. The additional shorting may reflect growing skepticism around Adobe’s ability to translate generative tools into durable revenue growth. This note attempts to outline some structural drivers that could be behind that sentiment. Before doing so, we’ll zoom in on the short interest trend over the last month.

On April 3rd the notional value of Adobe shares sold short reached a 52-week high of $4.2B, with the share price closing at $385. Over the subsequent four trading days, as markets were rocked by tariff headlines and the Adobe price declined by 12%, short sellers pressed the position increasing the number of shares short by 2.6%. The additional shorting failed to keep pace with the declining share price and the notional short value dropped to $3.8B on April 9th, with the share price closing at $340. That was the YTD low close for Adobe shares. From April 9th to May 1st the share price rallied a further 10% to close at $375 and short sellers started to back off the position, with shares short declining by 17% during that span to 9.4M shares.

During the first two weeks of May short sellers started to slowly add back to the position despite the share price continuing to rally, with shares short reaching 10.3M shares on May 9th with a closing price of $384, putting the notional short value back above $4B.

Revenue Pressure: Discounting and Retention Signals

The suggestion that Adobe will offer a 50% discount to existing Creative Cloud customers who threaten to cancel their subscription has circulated on X.com and the Adobe forums. That discount is similar to a promotion the firm has run on Black Friday historically. We were able to replicate this anecdote, confirming that accessing the account management screen offers an immediate 20% discount before making any indication of issues with the service or pricing. By clicking the button to cancel the subscription and clicking through a screen detailing what would be given up we were offered the 50% discount for 12 months. It is worth noting that these two offers wrap around a currently offered public promotion that gives any new subscriber a 30% discount. We were also offered an alternative of getting the next two months for free.

While retention offers are standard, the immediacy and depth of the concession imply rising elasticity and churn sensitivity. Returning to our anecdote, we don’t know if additional concessions awaited us if we clicked to confirm cancellation because we didn’t want to risk losing our existing Adobe assets, though we do appreciate the discount for the next 12 months.

This discounting dovetails with a story Bloomberg published on May 8th regarding Adobe’s response to a DOGE audit, which identified over 11,000 inactive Acrobat licenses across U.S. federal agencies. Adobe subsequently offered renewal discounts of up to 70%. Taken together, these cases suggest a willingness to trade ARR headline growth for retention—raising questions about the durability and quality of recurring revenue.

Model Quality and Competitive Positioning

Adobe’s Firefly models are trained exclusively on Adobe Stock, public domain materials, and internally licensed content. This ensures legal clarity—particularly relevant in enterprise workflows—but also constrains output quality.

Compared to models trained on broader datasets, Firefly delivers “corporate-safe” content that may underserve creative professionals and limit mass-market adoption. As a result, Adobe’s TAM for generative output may be narrower than peers, especially in media, entertainment, and design-led verticals.

Client Dynamics & Efficiency Gains

Generative tools like Photoshop’s Generative Fill and Express templates improve workflow efficiency but also erode the value of manual creative labor. This disintermediation is most acute at the freelancer and boutique agency level, where automation can suppress both client demand and license utility.

Two monetization risks to follow:

• Down-tiering or churn among individual and SMB users, particularly if generative tools fulfill core use cases without justifying full-stack subscriptions.

• Seat rationalization at the enterprise level, as automation reduces workflow redundancies and trims license counts.

In both cases, product success may accelerate revenue compression in Adobe’s historically stable segments.

Trust Risk and Policy Backlash

Adobe’s June 2024 terms-of-service update was widely interpreted as granting the company permission to use customer content for AI training. Despite a subsequent clarification that Firefly was not trained on user data, the backlash was significant—particularly among content creators—and damaged Adobe’s credibility as a platform steward.

The episode underscores the fragility of platform trust, especially as Adobe deepens its automation capabilities. While initiatives like Content Credentials have been praised for their efforts to reinforce authenticity, their effectiveness depends on broader industry adoption.

Financial Outlook and Valuation Frictions

Adobe guided FY2025 revenue to $23.3–$23.55B in its Q4 2024 earnings release, below the $23.78B consensus; Shares dropped ~9% after hours that day. The company reaffirmed the same range in its Q1 2025 report. While “AI-influenced” revenue surpassed $3.5B in Q1 2025, only ~$125M in ARR was directly attributed to generative-specific tools.

The firm continues to lean on pricing and bundle mechanics to drive top-line growth—a strategy that may be nearing saturation amid elevated competition from unbundled, lower-cost alternatives. Coupled with a potential downshift in seat-based monetization, the current trajectory raises questions about Adobe’s remaining pricing power.

Conclusion

Short interest in Adobe has increased alongside skepticism around monetization for generative AI and the broader strategic trade-offs of automation. While Adobe remains entrenched in core creative and document workflows, its AI growth narrative rests on tools that may accelerate seat compression, margin erosion, and platform scrutiny. Short sellers have increased positions since last August and price discounting in the quarter could be causing concerns about Q2 results. We will monitor trends closely ahead of earnings on June 12th, as crowding and other technical factors take on increased significance around earnings reports.

Adobe’s current multiple implies leverage from AI; recent positioning suggests concern that it may be leveraged in the wrong direction. Short sellers are increasing their bets—will Q2 results reward them as the last three quarters have?

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