ADBE Stock Drops After Morgan Stanley Downgrade – Sees ‘Cleaner Growth And AI Monetization Elsewhere’

The brokerage said Adobe faces rising execution risks as it navigates multiple strategic transitions simultaneously.

• Morgan Stanley downgraded Adobe despite the company recently posting record revenue and raising its full-year guidance.
• The firm also slashed its price target on ADBE’s stock by 34%.
• Retail traders on Stockwits questioned the downgrade, with many stating the selloff reflects broader weakness across AI software stocks.

Abode (ADBE) shares plummeted in pre-market trade on Tuesday after Morgan Stanley downgraded the stock and slashed its price target on the software giant by 34%.

Morgan Stanley analyst Adam Wood cut Adobe’s rating to ‘Underweight’ from ‘Equal Weight’, and cut the price target to $240 from $365, as per a note to investors cited by TheFly.

ADBE’s stock fell more than 5% in pre-market trade and was the top trending ticker on Stocktwits at the time of writing. 

Why Did Morgan Stanley Turn Bearish On ADBE Stock?

Wood stated that Adobe's simultaneous transitions, shifting toward a freemium model, changes in company leadership, and ongoing reinvestment into the business, are compounding execution risk at a moment when generative AI disruption is clouding the company's path back to accelerating annual recurring revenue growth. 

Morgan Stanley said it sees "cleaner growth and AI monetization elsewhere" within the software sector, supporting a relative ‘Underweight’ stance on Adobe compared to peers better positioned to capitalize on AI.

How Is Retail Feeling About ADBE Stock?

The downgrade triggered heavy engagement among retail traders on Stocktwits, with platform data showing an over 550% increase in message volume over the past 24 hours. Retail sentiment, however, climbed to ‘bearish’ from ‘extremely bearish’ territory over the past day.

Some retail traders on Stocktwits expressed skepticism toward the downgrade itself. One user tied Adobe's move to a broader pattern across AI-exposed software stocks, while another dismissed the downgrade's substance entirely.

Morgan Stanley’s downgrade comes despite Adobe reporting a beat-and-raise second quarter (Q2). The company posted record revenue of $6.62 billion, up 13% year-over-year, alongside earnings per share (EPS)of $5.96, beating consensus estimates of roughly $5.81. Adobe also raised its full-year guidance, with revenue expected to be between $26.50 billion and $26.60 billion, and EPS of $24.35 to $24.45.

ADBE’s stock has fallen over 30% this year and around 35% in the last 12 months.

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