Vertex (VERX) is going through a transition period, facing an uncertain path to growth as its end market remains reluctant to adopt artificial intelligence, Morgan Stanley said in a Tuesday note.

With new Chief Executive Chris Young at the helm, the company is shaking up its leadership team and focusing on new product development, but it could still take time to improve net retention rate, the investment firm said.

"Given tax compliance requires high levels of accuracy, controls, and auditability, it will take time for these risk-averse buyers to get fully comfortable adopting and scaling new AI products," Morgan Stanley said, noting the AI opportunity in automating certain tax and compliance processes.

The brokerage said the AI journey for Vertex could take relatively longer, but the company still has secular tailwinds such as e-invoicing and tax complexity.

Morgan Stanley downgraded Vertex to equalweight from overweight and cut its price target to $15 from $19.

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