Creative software and document management leader Adobe (ADBE 0.87%) has been a top investor pick in this new era of generative AI computing. The company has struck partnerships with Nvidia (NVDA 6.18%) to launch new features across its platform, which Adobe says will unleash a new wave of productive creativity for big businesses and sole proprietors alike. 

But after a solid fiscal Q3 earnings report, Adobe shares are falling -- though they remain up more than 60% so far in 2023. Is it time to buy the Adobe dip? 

Big bets on AI

Adobe was naturally quick to announce new products after Nvidia GPUs powering generative AI proved effective at aiding in digital image creation. The company has been adding features that help automate digital workflows for many years. But for this latest round of AI-powered upgrades, Adobe added new text-to-image and enhanced voice commands to its suite of software to help boost creator productivity. 

Chief among these new features was the launch in March 2023 of Firefly, a generative AI that initially provided image and text editing effects. Since then, Adobe has fully integrated Firefly into other services like its flagship Photoshop and Illustrator products to help with editing and mock-ups. Adobe says it has been seeing an uptick in downloads of some of its creative software as a result. It also said back in July, just a few months after its release, that Firefly had been used to create 1 billion images.

All this AI activity is having a limited effect on Adobe's financials, though. In its fiscal 2023 Q3 (which ended on Sept. 1), total revenue was $4.89 billion, $20 million more than it had forecast. However, it was still just a 10% year-over-year growth rate, or 13% when excluding the impact of changing currency exchange rates. Earnings per share (EPS) were up 26% year over year on a GAAP (generally accepted accounting principles) basis and 20% on a non-GAAP adjusted basis, benefiting from the power of software's ability to profitably scale and from Adobe's policy of returning profits to shareholders via stock repurchases. 

Adobe is still talking up AI, but it's clearly not translating into an explosion of financial growth for the company -- at least not yet. Management did add another $1 billion to its share repurchase plan, though, maintaining its commitment to returning excess cash to shareholders.

Financial guidance remains humdrum

So about that stock sell-off. The market was clearly disappointed not just by Adobe's last quarter, but also by management's guidance for the current one. Revenue in its fiscal Q4 is expected to increase by up to 11% from a year ago. In other words, still no Nvidia-style AI-fueled explosion in sales. Perhaps that's OK, though, as EPS is still expected to notch another 25% GAAP increase and a 15% increase on an adjusted basis.

The question now is whether Adobe stock is worth paying up for, given that the company is in a period of slower growth but expanding profitability. As of this writing, shares trade for a hefty 45 times full-year expected EPS and 33 times expected adjusted EPS.

Adobe is undeniably a powerful software company, one that should do quite well in this new era of AI. But its stock carries a high premium valuation. In my view, there are better cloud software stocks to buy right now -- companies that are putting up similar growth numbers but trading at more reasonable valuations. I'd wait for the AI hype to wear off a bit before buying Adobe stock.