Adobe Is Buying Back $25 Billion of Its Shares. Will It Halt the Price Decline?

Adobe (NASDAQ: ADBE) is fighting tooth and nail to remain relevant in the era of artificial intelligence (AI). Adobe makes digital design software products and systems and has been a celebrated Silicon Valley success since it was founded in San Jose, California, in 1982.

But the stock has been tumbling for more than two years on concerns that new AI applications will render the company's software obsolete or unnecessary. It's down 60% since January 2024 and 27% in 2026.

Adobe is now in the middle of a leadership transition, looking for a new CEO to help defend the company against a wave of AI-based competitors. Shantanu Narayen has served as the company's CEO for 18 years and has led major product development initiatives, including Photoshop, Illustrator, Premiere Pro, and InDesign.

The company has also pursued partnerships to develop its own AI-based products, including a critical one with AI chipmaking giant Nvidia.

This week, Adobe announced a $25 billion stock repurchase program, under which it can buy back shares up to that amount through April 2030. Companies often buy back shares in order to signal confidence to shareholders and halt a stock's downward trajectory.

And that's part of management's strategy here. In the buyback press release, management wrote, "Our new $25 billion share repurchase authorization is a direct expression of confidence in our robust cash flow and the long-term value we are delivering to investors."

By reducing the number of outstanding shares, a buyback can also raise the stock price and increase earnings per share.

Shares rose on the buyback announcement

Will it work? Shares of Adobe rose 3.4% on Wednesday, April 22, the day after the buyback was announced. That's a positive. Yet this is the company's second stock buyback in two years. In March 2024, the company announced a $25 billion buyback that is now nearly complete. Today, the share price is significantly lower.

Image source: Getty Images.

The next event to watch for with Adobe is its second-quarter financial results release, scheduled for June 11. While Adobe's revenue and profits have continued to grow at the same pace for a decade, the company will have to convince investors that it isn't as vulnerable to AI replacement as some believe. It will also need to show that it is actively developing a strategy (with new management in place) that makes it value-additive in an increasingly AI-centric software environment.

Matthew Benjamin has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Adobe and Nvidia. The Motley Fool recommends the following options: long January 2028 $330 calls on Adobe and short January 2028 $340 calls on Adobe. The Motley Fool has a disclosure policy.