Morgan Stanley Downgrades Adobe, Workday as AI Transition Raises Growth Concerns

Morgan Stanley adopted a mixed outlook on the software sector on Tuesday, turning bearish on Adobe (NASDAQ: ADBE) and Workday (NASDAQ: WDAY) while maintaining an overall positive view of the industry. The investment bank said artificial intelligence is reshaping competitive dynamics, favoring companies with stronger long-term positioning.

Adobe shares fell 3.8% in premarket trading after Morgan Stanley initiated coverage with an Underweight rating and a $240 price target. Analysts led by Adam Wood said Adobe is navigating several major transitions simultaneously, including a shift toward a freemium pricing model, leadership changes involving its CEO and CFO, and increased AI-related investments. According to the firm, these changes could delay a sustained acceleration in annual recurring revenue (ARR).

The analysts also warned that AI-native tools are increasingly challenging parts of Adobe’s workflow, although they noted the company continues to hold a significant competitive advantage in its professional creative software business.

Workday also received an Underweight rating with a $145 price target. Morgan Stanley acknowledged Workday’s strong competitive moat but said its AI initiatives are unlikely to generate meaningful revenue growth in the near term.

Salesforce (NYSE: CRM) and Intuit (NASDAQ: INTU) were both initiated with Equal-weight ratings. Salesforce was assigned a $185 price target, with analysts describing the company as a “tale of two cities.” While products such as Agentforce and Slack continue to gain momentum, weaker performance in Commerce and Tableau has weighed on overall organic growth.

Intuit received a $335 price target. Morgan Stanley argued that investor concerns about large language models replacing tax preparation and entry-level accounting software have pressured the stock more than warranted. Although the bank believes Intuit’s competitive moat remains among the strongest in software, it said the company is less prepared than some peers for the next phase of AI-driven innovation.

The ratings were part of Morgan Stanley’s new “Moat & Journey” framework, which evaluates software companies based on competitive durability and AI readiness. The bank’s top Overweight picks include Microsoft, Palo Alto Networks, CrowdStrike, Cloudflare, Datadog, ServiceNow, Snowflake, and Shopify. Morgan Stanley also downgraded Rapid7 and PagerDuty to Underweight while lowering ratings on Elastic, JFrog, NICE, Wix, BlackLine, and Vertex to Equal-weight due to valuation concerns and slower AI growth expectations.