Adobe's (ADBE) transitions in its freemium business model, management, and AI reinvestments compound execution risk as generative AI disruption obscures the path to annual recurring revenue reacceleration, Morgan Stanley said in a Tuesday research report.

The uncertainty around organizational restructuring and execution risk is likely to weigh on investor sentiment, "keeping the multiple depressed and range-bound," the brokerage stated.

While each company transition could be managed in isolation, a convergence raises the bar for execution when other segments of software offer "cleaner evidence" of durable growth and operating leverage, according to the note.

The company does not lack innovation, but translation of that innovation into durable ARR acceleration is increasingly difficult to underwrite as pools of creative cloud ARR become more exposed to GenAI substitution risk, analysts wrote.

The brokerage said it downgraded the stock to underweight from equalweight and cut its price target to $240 per share from $365.

Price: 229.14, Change: -5.60, Percent Change: -2.39