Shares of Adobe Inc (NASDAQ:ADBE) are moving lower on Wednesday after Morgan Stanley downgraded the stock and cut its price target.
What Happened: Morgan Stanley lowered its rating on Adobe from Overweight to Equal-Weight while reducing its target price to $450 from $520. Analyst Keith Weiss pointed to concerns about the company’s path to Digital Media annual recurring revenue (ARR) growth acceleration, as well as potential AI displacement risks.
The Morgan Stanley analyst noted that decelerating Digital Media ARR growth since the first quarter of 2024 presents “optically challenging” short-term prospects for renewed growth. Weiss believes Adobe would need to deliver net new Digital Media ARR “far ahead of historical seasonality” in the second half of fiscal 2026 to see a turning point in growth.
Morgan Stanley also highlighted AI displacement risks in Creative Cloud, especially among individual users of flagship products like Photoshop who may switch to external GenAI tools. The analyst estimated that AI-displacement risk exposure could grow toward 50% of Creative Cloud revenue.
“While believing in competitive moat at complex marketers & Creative Pros, we acknowledge potential pockets of risk,” the analyst wrote, highlighting concerns about Adobe’s sustained investment mode possibly lengthening the timeline to expand operating margins while the company steadily increases its R&D spending.
Despite the downgrade, Morgan Stanley acknowledged that Adobe shares are trading at a compelling valuation of around 15 times earnings, offering close to a 50% discount to large-cap software peers.
ADBE Price Action: Adobe shares were down 2.78% at $351.66 at the time of publication on Wednesday, according to Benzinga Pro. Adobe has a 52-week high of $557.90 and a 52-week low of $330.04.
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