Morgan Stanley turns colder on Adobe as AI worries drag shares
The bank cut Adobe to underweight and slashed its target to $240, citing AI pressure, leadership changes and a shift toward free access.
By Frankie Delgado · News Reporter
3 min read
Morgan Stanley has moved to the sidelines on Adobe in a big way, cutting the software maker to an underweight rating after a punishing slide for the stock this year.
The bank lowered its rating from equal-weight and chopped its price target to $240 from $365, according to MarketWatch. Adobe shares fell nearly 4% in premarket trading to $225.74 after the call. That left the stock down 33% for the year, with investors still weighing how artificial intelligence could pressure the company’s business model.
Adobe, based in San Jose, California, is best known for creative and marketing software. Its products sit squarely in the part of the tech market now being challenged by generative-AI tools, which can produce images, video, text and design assets with fewer traditional steps.
Morgan Stanley flags three changes at once
Adam Wood, Morgan Stanley’s head of European technology and payments equity research, wrote in a Tuesday note that Adobe is facing several major changes at the same time. He said that pileup makes each one harder to execute successfully.
Wood said the risk picture has changed since Morgan Stanley rated Adobe equal-weight about a year ago. At that point, he said, the potential hit from AI competitors on Adobe’s subscription sales was hard to measure. Now, according to the analyst, the company is working through three separate shifts at once.
- Adobe has moved toward giving many users free entry, a change Wood said effectively reduced recurring revenue growth by about $500 million in the second quarter.
- The company’s board is replacing both the chief executive officer and the chief financial officer, according to Wood.
- Adobe is also increasing its spending on AI.
Wood said any one of those changes might be manageable on its own. Taken together, he argued, they raise the level of execution Adobe needs to show, especially while other software companies offer clearer signs of durable growth, operating leverage or near-term AI revenue.
The downgrade comes after a sharp reset in Adobe’s market value. MarketWatch reported that the shares had already dropped more than 30% from the start of the year before Morgan Stanley’s latest call.
Valuation is low, but uncertainty remains
Wood did not argue that investors are ignoring the risks. He said Adobe’s low valuation already reflects a large share of the concern around the company.
His warning focused instead on timing and delivery. With free-access changes, leadership turnover and AI investment all happening together, Wood said there is less certainty around when Adobe’s planned turnaround may show up and how forcefully it can take hold.
The stock was also weaker than the broader market in the same premarket session. Adobe was listed down 1.06% in regular market data referenced by MarketWatch, while the premarket drop after the Morgan Stanley note was nearly 4%.
For Adobe investors, the latest Wall Street call adds another pressure point to a year already dominated by AI anxiety. Morgan Stanley’s message was direct: the price may look beaten down, but the company still has to prove it can handle several big changes at once.
This story draws on original reporting from MarketWatch.