Morgan Stanley downgraded Adobe to Underweight and slashed its price target from $365 to $240, while Salesforce was cut to Equal-weight with a price target reduction from $287 to $185, according to analyst Adam Wood. These moves sent Adobe shares down about 3.8% and Salesforce shares down nearly 2.9% in premarket trading.

Concerns Over AI Impact and Leadership Changes

The bank expressed concerns that Adobe's ongoing transition to a freemium pricing model and increased AI investment have not yet resulted in accelerated revenue growth. Leadership changes, including a new CEO and CFO, add further uncertainty. Wood highlighted that certain Adobe creative workflows face threats from emerging AI-native tools, potentially lengthening the timeline for sustainable growth. Morgan Stanley noted that these overlapping changes obscure when Adobe’s annual recurring revenue will significantly improve.

Regarding Salesforce, Morgan Stanley acknowledged the potential in its AI strategy, especially the Agentforce platform, but indicated that more concrete evidence is needed to confirm these technologies will boost subscription revenue. Legacy segments such as Commerce and Tableau continue to weigh on growth, limiting upside until newer AI-driven products can offset those declines. The downgrade to Equal-weight reflects expectations that Salesforce may trade sideways unless growth accelerates.

Other software stocks also saw rating adjustments: Workday received an Underweight rating with a $145 price target despite its strong competitive standing, as AI is not expected to drive near-term growth. Intuit was initiated at Equal-weight with a $335 target; the firm believes concerns about large language model disruptions to Intuit’s tax and accounting services are exaggerated but views the company as less prepared for the next AI phase.

Morgan Stanley listed Microsoft, Palo Alto Networks, CrowdStrike, Cloudflare, Datadog, ServiceNow, Snowflake, and Shopify among its preferred software sector picks. While Morgan Stanley has reservations, Salesforce holds a Moderate Buy consensus on Wall Street with an average target near $240, implying about 38% upside.

Material is for informational purposes only and not investment advice.