02:41 PM EDT, 03/13/2026 (MT Newswires) -- Adobe (ADBE) Chief Executive Shantanu Narayen's departure seems to have taken the spotlight away from signs of stabilization in the company's core business, Morgan Stanley said, as the software maker's shares declined on Friday.

The stock selloff came despite Adobe reporting stronger-than-expected fiscal first-quarter results late Thursday. It announced that Narayen planned to step down as CEO after leading Adobe for 18 years.

Adobe's shares were down 5.6% by Friday afternoon, and have slid 27% since the start of the year.

"The loss of an iconic leader at a time of peak uncertainty around the future of software more broadly, and the positioning of Adobe specifically in this new (generative artificial intelligence) world is bound to further investor uncertainty and anxiety around the shares," Morgan Stanley said in a note emailed Friday.

Several data points from the most recent quarter, however, suggest the company's performance has stabilized, having gone "through rough seas over the past several years," Morgan Stanley said.

The brokerage described Adobe's headline metrics in the first quarter as solid, with revenue accelerating quarter over quarter.

Adobe saw "tremendous" growth in monthly active users amid new initiatives, which "dampens (annualized recurring revenue) in the short term but sets us up to deliver in the quarters ahead," Narayen said during an earnings call late Thursday, according to a FactSet transcript.

"As we continue to transform the business to capitalize on the AI opportunity, our customer-focused strategy, rich product roadmap, innovation momentum and early success across all routes to market position us well to empower everyone to create," Narayen said.

Generative credit consumption within Firefly grew more than 45% quarter-over-quarter, while Firefly subscriptions and credit pack sales soared 75% sequentially, David Wadhwani, president of creativity and productivity business, told analysts. Firefly allows users to generate images, video, audio, and designs using AI models.

Morgan Stanley lowered its price target on Adobe to $365 from $425, while maintaining its equal-weight rating amid continued uncertainty around the Adobe story.

"Bottom-line, despite significant portfolio expansion for AI capabilities and early shift to monetization, investors likely need firmer evidence of a growth re-acceleration and/or material positive revisions to the forward outlook to ease concerns on AI competition and get back on-board despite shares trading at an undemanding valuation," the firm said.

Price: 255.30, Change: -14.48, Percent Change: -5.37