Shares of the creative software provider Adobe Inc. fell more than 10% in extended trading today after it reported strong fiscal first-quarter results but offered weak guidance, amid growing fears from investors that the rise of artificial intelligence could hurt its business.

There has been a growing debate on Wall Street around whether generative AI will ultimately hurt or help Adobe, which sells popular creative software tools such as Photoshop, Illustrator and Indesign, and today’s report has done little to bolster either viewpoint.

The company reported earnings before certain costs such as stock compensation of $4.48 per share, beating Wall Street’s target of $4.38. Revenue for the period rose 11% from a year earlier, to $5.18 billion, just ahead of the $5.14 billion consensus estimate. All told, the company reported net income of $620 million, down from the $1.24 billion profit it recorded one year earlier.

Adobe’s digital media segment, which includes iconic Creative Cloud design software such as Photoshop, came to $3.82 billion, just ahead of the Street’s forecast of $3.79 billion. The digital experience business segment delivered $1.29 billion in sales, also above the consensus call of $1.28 billion.

The company also reported net new digital media annualized recurring revenue of $432 million, beating the analysts’ forecast of $410 million. That’s a closely watched metric these days, as it’s the strongest measure of the performance of Adobe’s subscription-based offerings.

Adobe Chief Executive Shantanu Narayen (pictured) insisted that the company has done “an incredible job harnessing the power of generative AI to deliver groundbreaking innovation across our product portfolio.” However, investors were worried that the company’s guidance fell short in almost every segment.

The company is forecasting total revenue for the second quarter of between $5.25 billion and $5.3 billion, the midpoint of which is just below the Street’s target of $5.31 billion. The digital media segment is forecast to achieve sales of between $3.87 billion and $3.9 billion, the midpoint of which falls below the consensus forecast of $3.9 billion. Digital experience revenue is expected to be between $1.31 billion and $1.33 billion, once again below the consensus call of $1.33 billion.

Moreover, Adobe’s forecast of $440 million in net new digital media ARR was way below the Street’s call for $469.8 million.

For earnings, Adobe is targeting a range of $4.35 to $4.40 per share, which falls just shy of the Street’s forecast of $4.38 per share. The company declined to offer full-year guidance, but it did announce a new $25 billion stock repurchase program, which is something that usually pleases investors.

Adobe’s gloomy forecast will do little to reassure its shareholders that it’s ultimately going to benefit from the rise of generative AI. When the first wave of text-to-image tools, such as Stability AI Ltd.’s Stable Diffusion and OpenAI’s DALL-E 3, first appeared about a year ago in the wake of ChatGPT’s debut, investors reacted with concern and Adobe’s stock slipped.

However, the company responded quickly and aggressively, rolling out its own portfolio of generative AI tools such as its Firefly suite to take on its newfound rivals. The company went even further, offering to indemnify its customers against any possible intellectual property litigation relating to the use of its tools. Firefly includes tools with text-to-image capabilities and AI-assisted photo editing.

Recently though, investors have expressed concerns over the ongoing progress of Adobe’s rivals and the next generation of generative AI tools. Of particular concern is OpenAI’s soon-to-be-released Sora, which is a text-to-video tool that many interpret as a threat to Adobe’s business.

In a conference call, David Wadhwani, Adobe’s digital media business president, said the company intends to work with OpenAI around Sora. “You’re going to see us obviously developing our own model,” he said. “You’re going to see others developing a model. All that creates a tailwind, because the more people generate video clips, the more they need to edit that content.”

The executive added that upcoming product enhancements in the Firefly Services portfolio and the Adobe Express application, plus the launch of the company’s new Acrobat AI Assistant, which debuted last month, should help to boost digital media ARR in the second half of the year.

Although generative AI tools such as Sora are interesting and can be very powerful, they’re unlikely to really threaten Adobe’s business anytime soon, said Liz Miller, an analyst at Constellation Research Inc. She explained that the power of these tools can be intoxicating for many users who lack the creative skills and expertise, but they are far from enterprise-ready.  “Let’s take the example of Sora and one of the prompts shown — ‘the cat had 4 legs’,” Miller said. “Is a kitty litter company using a video of a kitten with four legs just because it is cheap and AI generated? The answer is no. At least, not today.”

Rather, Miller said generative AI tools are just an additive for most creative professionals, and they cannot compare with human ingenuity. The more pressing question Adobe should be looking to answer is how it intends to connect generative AI to existing workflows. “For paying customers, in a world where the attention paid to shiny AI objects like Sora and DALL-E is mostly fleeting, the real question is how Adobe is going to deliver lasting value and tangible use cases that fundamentally change how design work is created, optimized, orchestrated and delivered,” Miller said. “This is what C-suite customers are looking for. So AI companies need to show much more than just a cool video. They need to show why it can be used today and how it can be integrated with the growth engine built across existing customer experience functions.”

Third Bridge analyst Charlie Miner told SiliconANGLE via email that investors’ concerns over the generative AI threat are likely overblown, though he conceded that it is still something of a “double-edge sword” for the company. “It represents their only non-linear growth opportunity, but also enables competitors to potentially take share in individual product segments,” he said.

The analyst said Adobe’s soft forecast is likely unrelated to generative AI trends, but had the effect of playing into investor’s fears around the longer-term AI-driven uncertainty. “Our experts believe that while a product like Sora is a noteworthy development, concerns about Adobe’s shrinking moat are unjustified,” he said. “Adobe has a multi-decade head start in commercializing and selling creative tools, and a vendor like OpenAI is likely years away from meaningfully competing for dollars.”

According to Miner, most enterprise CEOs he spoke to have emphasized that they would prefer to leverage the AI offerings of existing vendors to optimize their workflows. “This will be a material tailwind for Adobe and other big tech incumbents over the next six to twelve months,” he added.

The biggest development in the company’s quarter was not the launch of Acrobat’s AI Assistant, but the news that Adobe was forced to abandon its plan to acquire the collaboration software developer Figma Inc. for $20 billion, after European regulators set sights on the deal and said the merger could reduce competition in local markets. The company revealed it and Figma had agreed to terminate the proposed deal after realizing there was “no clear path to receive necessary regulatory approval.” Adobe was forced to pay a $1 billion termination fee as a result of that decision.

Adobe’s stock has gained more than 61% in the past 12 months, well ahead of the S&P 500 Index, which is up 30% over the same period. However, it has performed less well recently, and its stock was down 4% prior to today’s after-hours drop, while the S&P 500 was up 8%.

Photo: Fortune Live Media/Flickr