Adobe (ADBE) underperformed its peers due to concerns around its generative AI positioning and growing competition, which has created a low bar for Q1 results, however, the Adobe Summit may provide a positive catalyst, Morgan Stanley said in an earnings preview on Monday.

The company has seen some weakness at the low end of the market, which might be offsetting strength at the higher end. Additionally, the lack of quarterly guidance for digital media net new annual recurring revenue limits investor visibility into the core business, the firm noted.

Morgan Stanley said that the company is preparing for stronger GenAI contributions with new products like Firefly and GenStudio but with potentially longer sales cycles the launches will not impact Q1 results significantly.

"Growth in Digital Media in Q1 was consistent with trends in Q4, and partners pointed to steady seat growth in Creative Cloud despite investor concerns that productivity gains from GenAI tools could reduce seat licenses," the firm said.

Morgan Stanley has an overweight rating on the company's stock with a price target of $660.

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