AI overturns the gloom shrouding the SaaS sector: Wall Street collectively sings short, Adobe (ADBE.US) and Salesforce, Inc. (CRM.US) ratings hit multi-year lows.

Notice of the concern that artificial intelligence will have an impact on software companies has prompted more and more Wall Street analysts to recommend selling stocks in Adobe (ADBE.US) and Salesforce, Inc. (CRM.US), with bearish sentiment reaching levels not seen in years. Morgan Stanley is the latest institution to issue a warning about this risk, lowering the stock ratings of these two companies as well as several others in the industry. Since early June, at least 5 institutions (including Stifel, Evercore ISI, Wolfe Research, and Bright Securities) have downgraded their ratings on Adobe, with over a dozen institutions having downgraded their ratings in 2026. Following these downgrades, Adobe's overall recommendation rating (measuring the ratio of buy, hold, and sell ratings) has dropped to 3.3 out of 5. Data shows that this is the lowest level since the 1990s. As for Salesforce, Inc., after recent downgrades from Morgan Stanley and KeyBanc Capital Markets citing their Agentforce AI product, this rating has fallen to 4.4, a new low since 2012. These actions highlight the market's cautious attitude towards the software sector. Due to concerns that competition from AI services will permanently weaken the industry's growth potential, pricing power, and gross margins, the sector has faced heavy selling pressure this year. Morgan Stanley analyst Adam Wood wrote, "As the disruptive controversy of generative AI intensifies and obscures the path for accelerating annual recurring revenue (ARR), Adobe's synchronous transformation in free value-add business model, succession in leadership, and reinvestment exacerbates its execution risk." Wood added, "While the current valuation has absorbed most of the disruptive risk, Adobe's synchronous transformation reduces visibility - hence weakening our confidence in the timing and strength of its potential performance stabilization." Analyst sentiment on Adobe falls Regarding Salesforce, Inc., Morgan Stanley's Elizabeth Potter wrote that the key performance indicators of their Agentforce AI product "have not yet driven organic growth to a turning point, as the drag from the traditional business portfolio still exists." Morgan Stanley also downgraded ratings for several other companies in the software sector, including: Workday Inc., Intuit Inc., JFrog Ltd., Elastic NV, PagerDuty Inc., Rapid7 Inc., SPS Commerce Inc., BlackLine Inc., and Vertex Inc. However, the firm upgraded the rating of cybersecurity software company Fortinet Inc. to "in line with the market", believing the company has a "solid recent performance trajectory." The iShares Expanded Tech-Software Sector ETF, a widely referenced benchmark for this sector, fell 1% on Tuesday, expanding its cumulative decline for the year to 13%. Adobe dropped 3.7%, with a cumulative decline of over 35% for the year. Salesforce, Inc. fell 1.6% and has a cumulative decline of 36% since 2026.