Morgan Stanley downgrades 3 software stocks as growth concerns mount

Morgan Stanley downgraded Adobe, Workday and Salesforce on Tuesday, citing stalled organic growth and AI initiatives failing to deliver meaningful revenue acceleration.

"Adobe faces multiple strategic transitions unfolding simultaneously that complicate its ability to return to stronger growth," Morgan Stanley analysts said in a note. The firm cut its rating on the creative software maker to Underweight from Equal-weight and slashed its price target by more than one-third to $240 from $365.

Workday was downgraded to Underweight from Equal-weight, with Morgan Stanley saying the company's artificial intelligence initiatives have not shown evidence of driving meaningful growth despite its strong moat in the enterprise software sector. Salesforce also received a downgrade, with the investment bank noting that while the company is "actively disrupting itself," there has yet to be an inflection in organic growth. Salesforce shares slid 3.6% in Tuesday trading.

The three downgrades come as Wall Street grows increasingly skeptical about the near-term payoff from AI investments in enterprise software. Adobe, Workday and Salesforce have all invested heavily in generative AI features — including Adobe's Firefly, Workday's AI-powered automation tools and Salesforce's Agentforce platform — but Morgan Stanley's assessment suggests these initiatives have not yet translated into sustained subscription revenue acceleration.

The downgrades pressure a sector already facing scrutiny over valuation multiples and growth deceleration. Adobe shares fell sharply following the announcement, while Workday and Salesforce also traded lower. Investors will watch upcoming earnings reports for signs of whether AI-driven products can shift the growth trajectory in the coming quarters.

This article is for informational purposes only and does not constitute investment advice.