Adobe's $25 Billion Buyback Sends a Clear Signal. Yet Shares Remain Dirt Cheap.

When Adobe (NASDAQ: ADBE) announced last month that its board had authorized a new $25 billion share repurchase program, the market mostly shrugged. Shares closed near $247 on the day of the announcement and ended the week slightly lower. For a buyback that big -- and from a company with a market value of close to $100 billion -- the muted reaction was notable.

But the tepid response says more about sentiment toward Adobe right now than it does about the buyback itself.

The creative software company's shares are down about 27% year to date and roughly 33% over the past 12 months, weighed down by persistent fears that generative artificial intelligence (AI) will eventually erode its pricing power in creative and marketing software.

Yet behind the gloom, the underlying business is still growing at a double-digit clip and producing huge amounts of cash. And the company is now using much of that cash to buy back its own shares at a pace that should quietly pull earnings per share higher for years. Trading at about 11 times forward earnings, the stock may be one of the cheapest large-cap software names in the market today.

Image source: The Motley Fool.

A business growing through the noise

Adobe's first quarter of fiscal 2026 (the period ended Feb. 27, 2026) didn't look like the report of a company being disrupted. Revenue rose 12% year over year to a record $6.40 billion as total annualized recurring revenue (ARR), or the annualized value of the company's subscription contracts as of the measurement date, exited the quarter at $26.06 billion -- up 10.9%.

Further, Adobe's fiscal first-quarter adjusted operating margin landed at an enviable 47.4%, and non-GAAP (adjusted) earnings per share climbed 19% to $6.06.

The more interesting numbers were below the headline. ARR from Adobe's AI-first applications more than tripled year over year. Generative credit consumption rose more than 45% from the prior quarter. And new customer acquisition for Firefly Enterprise -- Adobe's generative AI offering for large brands -- grew 50%.

Also, highlighting strong engagement on its platform, monthly active users across the company's key products surpassed 850 million, up 17%.

All of this growth, however, came alongside a real headwind. On the company's fiscal first-quarter earnings call, CEO Shantanu Narayen acknowledged that Adobe saw "a greater-than-anticipated decline in our traditional, stand-alone stock book of business." The photo-licensing business is roughly $450 million in annualized revenue, so it's not a trivial drag.

For the full year, Adobe is guiding for revenue of $25.9 billion to $26.1 billion, ARR growth of about 10.2%, and adjusted earnings per share of $23.30 to $23.50. And free cash flow remains impressive, with levered free cash flow of about $10.3 billion over the trailing 12 months.

A buyback this big in a stock this cheap

Against that backdrop, the size of the new repurchase authorization deserves a closer look.

The $25 billion program -- which runs through April 30, 2030, and replaces a similarly sized 2024 authorization that was nearly complete -- amounts to nearly a quarter of Adobe's market capitalization of about $103 billion as of this writing.

Plenty of large companies announce buybacks. But a buyback of this size is a different kind of statement.

"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," chief financial officer Dan Durn said in the announcement about the program.

The company is already acting on that confidence. Adobe repurchased about $2.5 billion of its own stock during fiscal Q1. With shares trading at about 11 times the midpoint of management's full-year earnings forecast -- well below the company's five-year median price-to-earnings ratio in the 40s -- every dollar of repurchases now retires far more shares than it would have a year or two ago.

Of course, cheap stocks are often cheap for a reason.

The fear is that AI-native tools from the likes of Canva, Figma, OpenAI, and even some AI tools from Alphabet's Google, could chip away at Adobe's market share in prosumer and small-business markets. Then there's another AI-related concern: potential margin pressure from heavier AI investment. And Narayen's pending exit, after more than 18 years as CEO, introduces leadership uncertainty at a delicate moment.

These risks aren't trivial, and they could easily keep the stock in the penalty box for a while. But for investors willing to look past the noise, Adobe seems to offer a rare combination of double-digit growth and world-class margins at a valuation that already prices in a heavy dose of pessimism.

The $25 billion buyback, of course, isn't a quick fix. Over time, though, it could make a significant difference -- especially if the underlying business keeps compounding nicely, too.

Daniel Sparks and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Adobe, Alphabet, and Figma. 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.