Morgan Stanley warns AI could sink 42-year-old software giant (finance.yahoo.com)

Morgan Stanley downgraded Adobe, cutting its rating to equal-weight and trimming the price target to $450 from $520, flagging a widening gap between Adobe’s AI product innovation and the revenue that’s actually materializing. The bank’s analyst, Keith Weiss, says Adobe’s sprawling AI features—Firefly in Creative Cloud, Acrobat AI Assistant and GenStudio—haven’t yet accelerated Digital Media ARR the way investors expected. Adobe’s Digital Media ARR rose to $18.59B in Q3 (11.7% YoY), a deceleration from prior quarters despite management saying AI-influenced ARR tops $5B and AI-first product ARR exceeded $250M. Shares are down ~20.6% YTD, reflecting Wall Street skepticism that AI add-ons alone can drive the next leg of growth. The call matters for the AI/ML community because it highlights a central industry question: widespread adoption and flashy demos don’t automatically translate into predictable monetization. Competitors—Canva (220M monthly users), Figma’s AI-enabled workflows, and Big Tech players—are rapidly embedding generative features, compressing Adobe’s pricing power and enterprise expansion runway. For ML product teams, the takeaway is technical and strategic: integrating models into workflows (agents, code-aware features, content generation) is necessary but not sufficient—clear upsell mechanics, ARPU expansion, and measurable ARR cadence are required to convince investors that generative AI yields durable business value.