Morgan Stanley Downgrades Adobe (ADBE) Stock Amid AI Disruption Fears

Wall Street's confidence in creative software giant Adobe just got a reality check. Morgan Stanley pulled the trigger on a downgrade, signaling that even industry titans aren't immune to AI's disruptive wave.

The Analyst Perspective

Morgan Stanley's move reflects growing concerns about how generative AI tools could erode Adobe's core market dominance. The banking giant sees emerging AI competitors threatening Adobe's creative software moat—and they're not alone in this assessment.

Market Implications

While traditional investors panic about short-term stock performance, the real story is how quickly AI is reshaping entire industries. Adobe's response to this technological shift will determine whether this downgrade becomes a temporary blip or a trend reversal.

Another case of Wall Street analysts being late to the technology party—they've finally noticed the AI revolution happening right under their noses.

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Keith Weiss, a top five-star rated analyst at Morgan Stanley, says he remains concerned about Adobe’s push to adopt artificial intelligence (AI) and add it to the company’s suite of software products that includes Illustrator and Photoshop. So far, Adobe’s adoption of generative AI hasn’t yielded many benefits, argues Weiss.

As a result, Morgan Stanley has lowered its rating on ADBE stock to a Hold-equivalent equal-weight from a Buy-equivalent overweight previously. The bank also cut its price target on Adobe’s shares to $450 from $520 previously.

AI Rebrand

ADBE stock has struggled as analysts and investors have grown nervous about the impact AI-generated images and creative design will have on the company’s business and future results. Adobe has responded by rebranding itself as an AI-centered company. CEO Shantanu Narayen said in the company’s most recent earnings release that Adobe is “the leader in the AI creative applications category.”

Analyst Weiss questions whether Adobe’s push into AI is playing out as hoped. In a note to clients, he highlighted a deceleration in digital media annual recurring revenue, or revenue attributed to Adobe’s subscription-based services. The decline “has driven outsized concern on Adobe’s ability to prove GenAI net expansive to its total opportunity,” wrote Weiss. ADBE stock is down 21% this year.

Is ADBE Stock a Buy?

Adobe stock has a consensus Moderate Buy rating among 28 Wall Street analysts. That rating is based on 18 Buy, eight Hold, and two Sell recommendations issued in the last three months. The average ADBE price target of $458.12 implies 30% upside from current levels.