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My guess is that they know they will lose their DieHard users that cost them the most money even though they produce the most content.
What will happen in the vacuum is that other users will rise up to fill in the gap that are more in line with modern Reddit and will make Reddit more money in the long term.
I mean of course they are selling their soul to their venture capitalists (or at least whatever remains of it) in the process but I guess as long as their primary shareholders go home with a fat wallet they're okay with whatever happens.
I agree with the exception that I expect the moderators that rise up will be more inclined to use regurgitated content from other sites without expanding upon it. So the site will have worse content.
I have no proof, but neither doubts that they've been experimenting with AI for content creation. Even comments. And sure, the quality will tank. But I think they're banking on what are addicted users to do, not get their dopamine hit?