Shares of Adobe have declined over 30% since the start of the year.

After plunging more than 30% since the start of the year, Morgan Stanley has cut Adobe's stock rating, warning of three "concurrent transitions."

The investment bank downgraded the software company, which specializes in creative and marketing tools, from "equal-weight" to "underweight," reducing its price target by over a third from $365 to $240.

Shares of Adobe $(ADBE)$ fell nearly 4% to $225.74 in premarket trading, with total declines since the start of the year down to 33% as investors continue to worry that the artificial-intelligence industry will disrupt its business model.

Adam Wood, head of European technology and payments equity research at Morgan Stanley, wrote in a note on Tuesday that the San Jose, Calif.-headquartered company is currently undergoing a number of significant changes, which has raised the risk of each of the transitions succeeding.

While it was initially difficult to assess the impact AI rivals might have on subscription revenue when Adobe was rated "equal-weight" about a year ago, now Adobe is also dealing with three "concurrent transitions," he said.

Firstly, the 43-year-old company has shifted in favor of offering free entry to many users, which Wood warned effectively brought recurring revenue growth down by about $500 million in its second quarter. At the same time, the board is currently replacing both the chief executive officer and the chief financial officer, and, it's making more AI investment.

"While each transition may be manageable in isolation, their convergence raises the bar for execution at a time when other areas of software offer cleaner evidence of growth durability, operating leverage, and / or near-term AI monetization," Wood wrote.

He noted that Adobe's low valuation already prices in much of this risk, however, the simultaneous changes create uncertainty regarding timing and how strongly the company will be able to deliver its planned turnaround.

-Nora Redmond

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July 21, 2026 06:58 ET (10:58 GMT)

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