Shares of Adobe (ADBE) and Workday (WDAY) declined sharply in Tuesday trading after Morgan Stanley issued downgrades, citing mounting strategic challenges and the disruptive impact of artificial intelligence across the software sector. The moves dragged down other enterprise software names, including Salesforce (CRM) and Intuit (INTU), as investors reassess the competitive landscape.
Adobe Downgraded to Underweight
Morgan Stanley analyst Adam Wood lowered Adobe's rating from Equal-weight to Underweight and slashed the price target by more than a third, from $365 to $240. The stock fell roughly 2% in early trading, extending its year-to-date decline to nearly 31%.
Wood highlighted that Adobe is navigating three simultaneous transitions: an expansion of its freemium strategy, leadership changes with both the CEO and CFO positions in flux, and increased investment in artificial intelligence. “While each transition may be manageable in isolation, their convergence raises the bar for execution at a time when other areas of software offer cleaner evidence of growth durability, operating leverage, and/or near-term AI monetization,” Wood wrote.
The freemium shift has already weighed on recurring revenue. Morgan Stanley estimates the strategy reduced annual recurring revenue (ARR) growth by roughly $500 million in the company's second quarter. Combined with management turnover and higher AI spending, the path to durable ARR reacceleration appears extended.
Although Adobe's core creative professional business retains a strong competitive position, Morgan Stanley believes parts of its broader workflow are increasingly vulnerable to AI-native alternatives for both consumer and enterprise users. The bank acknowledged that Adobe's lower valuation already reflects many of these concerns, but argued that the simultaneous changes create uncertainty over the timing and strength of any recovery.
Workday Also Downgraded
Morgan Stanley initiated coverage of Workday with an Underweight rating and a $145 price target, sending the HR software company's shares down more than 2.75%. While the bank described Workday's competitive moat as one of the strongest in enterprise software, it said the company's AI initiatives are unlikely to drive meaningful growth acceleration in the near term.
Salesforce and Intuit Get Mixed Outlook
The brokerage assigned Equal-weight ratings to Salesforce and Intuit, reflecting a balanced view. For Salesforce, Wood described a “tale of two cities,” with strong momentum in products like Agentforce and Slack offset by weakness in Commerce and Tableau, resulting in slower overall organic growth. Morgan Stanley set a $185 price target for Salesforce, whose shares fell more than 1.9%.
On Intuit, which received a $335 price target, the bank said investor concerns about its competitive moat have weighed heavily on valuation. The worry is that large language models (LLMs) could file taxes and provide entry-level accounting software at much lower prices. However, Morgan Stanley argued those fears are “overdone,” ranking Intuit 12th within its software coverage universe for moat strength, while noting the company is less prepared than some peers for the next stage of AI-driven development.
Broader Software Sector Reassessment
The ratings changes were part of Morgan Stanley's broader software sector report, which introduced a “Moat & Journey” framework to assess companies based on competitive durability and AI readiness. The bank identified Microsoft, Palo Alto Networks, CrowdStrike, Cloudflare, Datadog, ServiceNow, Snowflake, and Shopify as its highest-conviction Overweight-rated software stocks.
Morgan Stanley also downgraded Rapid7 and PagerDuty to Underweight and reduced ratings on Elastic, JFrog, NICE, Wix, BlackLine, and Vertex to Equal-weight, citing valuation concerns or a longer path toward AI-driven growth.
For investors tracking broader market moves, the tech selloff has been a recurring theme. In a related context, the Dow dropped 486 points recently as an AI-led tech selloff intensified, and chip stocks have also faced headwinds amid overcapacity fears, as seen in Intel and AMD stock slides. Meanwhile, some investors are looking to diversify beyond AI with fundamentally strong stocks.
This article is for informational purposes only and does not constitute financial advice.
