diff --git a/launchable/commands/subset.py b/launchable/commands/subset.py
index 26202ed04..595a9c426 100644
--- a/launchable/commands/subset.py
+++ b/launchable/commands/subset.py
@@ -626,8 +626,13 @@ def run(self):
                 subset_result = self.request_subset()
 
             if len(subset_result.subset) == 0:
-                warn_and_exit_if_fail_fast_mode("Error: no tests found matching the path.")
-                return
+                if len(subset_result.rest) > 0 and client.is_pts_v2_enabled() and confidence is not None:
+                    # Adaptive Dynamic Subset can return an empty subset when the model
+                    # determines no tests in that suite are relevant to the code change.
+                    click.echo(click.style("No tests were selected for this code change.", fg="yellow"), err=True)
+                else:
+                    warn_and_exit_if_fail_fast_mode("Error: no tests found matching the path.")
+                    return
 
             if split:
                 click.echo("subset/{}".format(subset_result.subset_id))
diff --git a/tests/commands/test_subset.py b/tests/commands/test_subset.py
index 7781ba71c..ef4933a58 100644
--- a/tests/commands/test_subset.py
+++ b/tests/commands/test_subset.py
@@ -208,6 +208,101 @@ def test_subset_targetless(self):
         payload = json.loads(gzip.decompress(responses.calls[1].request.body).decode())
         self.assertTrue(payload.get('useServerSideOptimizationTarget'))
 
+    @responses.activate
+    @mock.patch.dict(os.environ, {"LAUNCHABLE_TOKEN": CliTestCase.launchable_token})
+    def test_confidence_subset_with_empty_valid_subset_when_pts_v2_enabled(self):
+        pipe = "test_aaa.py\ntest_bbb.py\ntest_ccc.py"
+        responses.replace(
+            responses.GET,
+            "{}/intake/organizations/{}/workspaces/{}/state".format(
+                get_base_url(),
+                self.organization,
+                self.workspace),
+            json={"isFailFastMode": False, "isPtsV2Enabled": True},
+            status=200)
+        responses.replace(
+            responses.POST,
+            "{}/intake/organizations/{}/workspaces/{}/subset".format(
+                get_base_url(),
+                self.organization,
+                self.workspace),
+            json={
+                "testPaths": [],
+                "testRunner": "file",
+                "rest": [
+                    [{"type": "file", "name": "test_aaa.py"}],
+                    [{"type": "file", "name": "test_bbb.py"}],
+                    [{"type": "file", "name": "test_ccc.py"}],
+                ],
+                "subsettingId": 123,
+                "summary": {
+                    "subset": {"duration": 0, "candidates": 99, "rate": 0},
+                    "rest": {"duration": 30, "candidates": 0, "rate": 100}
+                },
+                "isObservation": False,
+            },
+            status=200)
+
+        result = self.cli(
+            "subset",
+            "--confidence",
+            "90%",
+            "--session",
+            self.session,
+            "file",
+            input=pipe,
+            mix_stderr=False)
+        self.assert_success(result)
+        self.assertEqual(result.stdout, "")
+        self.assertIn("No tests were selected for this code change.", result.stderr)
+        self.assertIn("Launchable created subset 123", result.stderr)
+        self.assertNotIn("Error: no tests found matching the path.", result.stderr)
+
+    @responses.activate
+    @mock.patch.dict(os.environ, {"LAUNCHABLE_TOKEN": CliTestCase.launchable_token})
+    def test_confidence_subset_with_empty_subset_and_rest_is_error_even_if_summary_has_candidates(self):
+        pipe = "test_aaa.py\ntest_bbb.py\ntest_ccc.py"
+        responses.replace(
+            responses.GET,
+            "{}/intake/organizations/{}/workspaces/{}/state".format(
+                get_base_url(),
+                self.organization,
+                self.workspace),
+            json={"isFailFastMode": False, "isPtsV2Enabled": True},
+            status=200)
+        responses.replace(
+            responses.POST,
+            "{}/intake/organizations/{}/workspaces/{}/subset".format(
+                get_base_url(),
+                self.organization,
+                self.workspace),
+            json={
+                "testPaths": [],
+                "testRunner": "file",
+                "rest": [],
+                "subsettingId": 123,
+                "summary": {
+                    "subset": {"duration": 0, "candidates": 99, "rate": 0},
+                    "rest": {"duration": 30, "candidates": 99, "rate": 100}
+                },
+                "isObservation": False,
+            },
+            status=200)
+
+        result = self.cli(
+            "subset",
+            "--confidence",
+            "90%",
+            "--session",
+            self.session,
+            "file",
+            input=pipe,
+            mix_stderr=False)
+        self.assert_success(result)
+        self.assertEqual(result.stdout, "")
+        self.assertIn("Error: no tests found matching the path.", result.stderr)
+        self.assertNotIn("No tests were selected for this code change.", result.stderr)
+
     @responses.activate
     @mock.patch.dict(os.environ, {"LAUNCHABLE_TOKEN": CliTestCase.launchable_token})
     def test_subset_goalspec(self):