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Shares of Adobe (NASDAQ: ADBE) shot about 14% higher on June 14. Investors were responding to a positive fiscal fourth-quarter earnings report.

Adobe's latest round of results suggests the software giant has what it needs to monetize generative artificial intelligence (AI) applications. Nearly all sell-side analysts on Wall Street raised their price target on the stock.

Wells Fargo analyst Michael Turrin raised his bank's price target on Adobe to $700 from $675 per share. The new target suggests it can deliver a 33% gain once the rest of the market sees Adobe in the same light.

Before risking your money on Adobe stock, it's important to remember that sell-side analysts can adjust their attention-getting price targets downward if things don't work out as they hope. Replacing the savings you could lose by following a bad call isn't so easy. Let's weigh some reasons to buy Adobe against some challenges it faces to see if now is a good time to buy.

Why Adobe could be a great investment

If you're a professional content creator, there's a strong chance that you need an Adobe Creative Cloud subscription to earn a living. A large, dedicated following of creative types makes it relatively easy to roll out new products. For example, the company's new generative AI application, Firefly, launched last March, and it's been used to generate over 9 billion images across the rest of Adobe's creative tools.

It's not just content creators who've found a use for Adobe's software. There are more than 3 trillion PDF files in the world, and Adobe's Acrobat AI Assistant appears to be the preferred tool for analyzing them and generating more. Second-quarter Document Cloud revenue grew 19% year over year, but this doesn't tell the whole story.

Adobe's Document Cloud business is driving heaps of new business and allowing the company to outperform this niche industry's market leader, Docusign (NASDAQ: DOCU). During Docusign's fiscal first quarter, which ended on April 30, revenue was up just 7% year over year.

Adobe doesn't pay a dividend, but it does share profit with shareholders in the form of share buybacks. It's reduced its share count by 6% over the past three years. In the second quarter alone, it bought back 4.6 million shares.

Reasons to remain cautious

Adobe's attempt to acquire Figma, the company behind the increasingly popular collaborative interface design tool of the same name, fell apart late last year. Adobe had to pay a $1 billion acquisition termination fee and walk away after government regulators blocked the deal.

Adobe's software is often the gold standard in various content creation niches, but it isn't operating in a vacuum. Without the acquisition of Figma, Adobe XD's future isn't nearly as bright as it could be. The once ubiquitous Photoshop application is also feeling significant pressure from Canva and its simpler, free-to-use image editing solution.

Shares of Adobe aren't trading at the nosebleed-inducing valuations they reached last year, but the stock is still pricey at about 29 times the midpoint of management's adjusted earnings expectation for 2024. If the revenue growth deceleration the company's been reporting in recent years continues after some brief AI-driven gains, the stock could get beaten down severely.

A buy now?

Adobe is predicting that total revenue will climb about 10.6% this year. This is slower growth than the company reported when the COVID-19 pandemic forced more people to work from home, but it's nearly fast enough to justify the stock's present valuation.

At recent prices, Adobe stock is a little too risky for most investors. It's probably best to wait for a more attractive entry point or further signs that new generative AI solutions can continue bringing in subscribers before taking a chance on the stock.

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Cory Renauer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Adobe and Docusign. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.