Adobe, Workday Shares Fall as Morgan Stanley Initiates Coverage with Underweight Ratings

Shares of major software companies, including Adobe, Salesforce, and Intuit, fell in premarket trading Tuesday after Morgan Stanley initiated coverage with a cautious outlook on several industry leaders. The bank cited concerns ranging from artificial intelligence disruption to slowing organic growth and internal company transitions, leading to a broad reassessment of valuations across the sector.

Key Ratings and Market Reaction

The initiation of coverage by Morgan Stanley analysts led by Adam Wood sent ripples through the software market ahead of the opening bell. The most significant impacts were felt by companies that received unfavorable ratings.

• Adobe (ADBE): Shares fell 3.8% after being started at Underweight with a $240 price target.
• Workday (WDAY): The stock dipped 4.2% on an Underweight rating and a $145 price target.
• Intuit (INTU): Shares slid 4.3% following an Equal-weight rating and a $335 price target.
• Salesforce (CRM): The stock declined 2.9% after being initiated at Equal-weight with an $185 price target.

Analyst Cites AI and Growth Headwinds

Morgan Stanley's analysis pointed to specific challenges for each company. For Adobe, the bank expressed concern that the company is navigating "multiple transitions at once," including a shift to freemium pricing, leadership changes, and heavy AI reinvestment. Analysts wrote these factors "elongate the path to durable annual recurring revenue (ARR) reacceleration" and expose parts of its workflow to "AI-native substitution."

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For Workday, the report noted that while its competitive moat is one of the strongest in software, its AI initiatives are unlikely to "drive a meaningful growth acceleration yet in the near term." Salesforce was described as a "tale of two cities," where strong momentum in some divisions has not been enough to offset weakness in areas like Commerce and Tableau. Regarding Intuit, analysts believe investor fears that large language models will disrupt its tax and accounting software are "overdone," but noted the stock's valuation has been heavily impacted by this perception.

A New Framework for a New Era

The ratings were part of a broader software industry report where Morgan Stanley introduced a "Moat & Journey" framework to evaluate companies' durability and AI readiness. Despite the high-profile downgrades, the firm maintained an overall 'Attractive' view on the software sector.

The bank named several companies as its highest-conviction Overweight-rated stocks, including Microsoft, Palo Alto Networks, CrowdStrike, Cloudflare, Datadog, ServiceNow, Snowflake, and Shopify. Elsewhere in the report, Morgan Stanley downgraded Rapid7 and PagerDuty to Underweight and cut several others, including Elastic and NICE, to Equal-weight.