Key Takeaways
- Morgan Stanley slashed Adobe’s rating to Underweight, reducing its price target from $365 down to $240
- Salesforce received a downgrade to Equal-weight, with its target trimmed from $287 to $185
- Premarket trading saw Adobe decline approximately 4%, with Salesforce and Intuit also posting losses
- The bank flagged AI-related uncertainties, executive transitions, and decelerating revenue as major risk factors
- Wall Street consensus still suggests greater potential upside in Salesforce compared to Adobe
Major software companies faced pressure Tuesday after Morgan Stanley released bearish analyst notes on Adobe and Salesforce, triggering sell-offs in premarket activity.
Shares of Adobe tumbled approximately 3.8% in early trading before the opening bell. Salesforce declined around 2.9%, while both Intuit and Workday experienced drops exceeding 4%.
The coverage shift was spearheaded by analyst Adam Wood, who downgraded Adobe to Underweight while slashing the price target to $240 from a previous $365. Salesforce saw its rating lowered to Equal-weight, accompanied by a reduced target of $185 versus the prior $287.
Adobe Downgrade: Timing and Transition Concerns
Morgan Stanley’s primary worry surrounding Adobe centers on execution timing. Despite ongoing innovation initiatives, the firm has yet to demonstrate accelerated top-line expansion.
The software giant is implementing a freemium business model while ramping up investments in artificial intelligence capabilities. Compounding this strategic shift are simultaneous changes in both the CEO and CFO positions, creating additional layers of uncertainty.
Wood highlighted vulnerability in certain segments of Adobe’s creative workflow ecosystem, noting that emerging AI-native competitors could potentially disrupt established processes. Although Adobe maintains dominance among creative professionals, the timeline for sustainable growth acceleration appears increasingly extended.
The investment bank emphasized that these concurrent transformations obscure visibility into when annual recurring revenue might experience significant momentum.
Salesforce Rating Cut Despite AI Potential
While Morgan Stanley recognizes the potential of Salesforce’s artificial intelligence initiatives, particularly the Agentforce platform, Wood emphasized the need for concrete proof that these innovations will translate into subscription revenue gains.
Legacy business segments such as Commerce and Tableau remain headwinds on consolidated growth metrics. Without clear evidence that Agentforce and other new offerings can counterbalance underperforming divisions, Wood anticipates restricted upside potential.
The Equal-weight designation reflects expectations that shares may remain within a trading range absent meaningful growth inflection, according to the analyst.
Workday received an Underweight designation with a $145 price objective. Morgan Stanley recognized the company’s robust competitive positioning within the software landscape but expressed skepticism that AI initiatives would generate substantial near-term revenue acceleration.
Intuit commenced coverage at Equal-weight with a $335 target. Morgan Stanley dismissed concerns that generative AI models pose an existential threat to Intuit’s tax preparation and accounting operations as excessive, though noted the company’s AI readiness appears comparatively limited.
Morgan Stanley identified Microsoft, Palo Alto Networks, CrowdStrike, Cloudflare, Datadog, ServiceNow, Snowflake, and Shopify as preferred investment opportunities within the software sector.
Across the broader analyst community, Salesforce maintains a Moderate Buy consensus with an average price objective of $239.94, suggesting approximately 38% appreciation potential. Adobe holds a Hold consensus rating, with analysts targeting $258.90 on average, indicating roughly 10% upside from current levels.
Get 3 Free Stock Ebooks
Discover top-performing stocks in AI, Crypto, and Technology with expert analysis.
- Top 10 AI Stocks - Leading AI companies
- Top 10 Crypto Stocks - Blockchain leaders
- Top 10 Tech Stocks - Tech giants
