Adobe (ADBE +3.54%) just announced a new $25 billion stock repurchase authorization through the end of April 2030. That is a striking number for a company with a market capitalization of about $104 billion as of this writing.
And it comes at a notable time.
Shares of the creative software specialist had already fallen around 29% this year before the announcement, capping off a brutal stretch that has seen the stock slide about 60% since its 2024 peak. Investors increasingly worried that highly capable artificial intelligence (AI) creative tools could weaken demand for some of the company's traditional software by making it easier for non-professionals to produce visual content. Further complicating the narrative, longtime chief executive officer Shantanu Narayen recently announced plans to step down, adding a layer of leadership uncertainty.
But Adobe thinks this uncertainty-driven sell-off in its stock price is a buying opportunity. Is it?
I think so.
Image source: The Motley Fool.
Strong business fundamentals
The main reason Adobe stock looks attractive here is straightforward: The market seems to be pricing Adobe as if its business is already deteriorating. But the company's most recent financial results do not show that.
In its first quarter of fiscal 2026, Adobe produced record revenue of $6.40 billion -- up 12% year over year. The company also generated record operating cash flow of $2.96 billion. Total annualized recurring revenue (ARR) exiting the quarter reached $26.06 billion. And management's fiscal Q2 revenue target of $6.43 billion to $6.48 billion suggests the company expects its double-digit top-line momentum to continue.
Monetizing the AI transition
The bigger point, though, is that Adobe's artificial intelligence efforts are actually showing up in the numbers.
During the company's fiscal first-quarter earnings call, management said AI-first ARR more than tripled year over year.
And Firefly momentum looked particularly notable. Generative credit consumption rose more than 45% quarter over quarter. As a result, Firefly ending ARR -- across the app, credit packs, services, and Foundry -- exceeded $250 million.
Of course, this doesn't mean Adobe is out of the woods yet in regard to AI potentially being more of a disruptor to its business than a catalyst. But it does suggest the company is monetizing this transition rather than simply watching it happen.
Further, in March, the company announced a strategic collaboration with AI chipmaker Nvidia (NVDA +1.23%). The two companies are aiming to develop the next generation of Firefly models, agentic creative and marketing workflows, and a cloud-native 3D digital twin solution for digital marketing, reinforcing the idea that Adobe is leaning into infrastructure and workflow changes.
A forgiving valuation
Additionally, Adobe's big buyback makes sense in the context of the stock's cheap valuation. Shares trade at just 15 times earnings.
That is not the sort of price-to-earnings ratio investors usually pay for a profitable software company still growing revenue at a double-digit rate.
And if management keeps repurchasing stock aggressively at these levels, that should help support per-share value over time. Adobe already repurchased about 8.1 million shares in fiscal Q1 before this new authorization was announced.
As Adobe chief financial officer Dan Durn noted in the company's press release about this new buyback authorization, it serves as "a direct expression" of confidence in the company's "robust cash flow and the long-term value" it is delivering to investors.
Of course, there are risks. Adobe itself said during the earnings call that it saw a greater-than-anticipated decline in its traditional stock book of business in fiscal Q1. Further, shares could remain volatile if investors keep fretting over new AI-driven design tools from competitors or if Adobe's AI monetization efforts are not fast enough to offset pressure in legacy areas. And the upcoming CEO transition also introduces additional execution risk at a delicate time.
NASDAQ: ADBE
Key Data Points
Is it time to buy?
But the overall setup still looks good.
The company still has enormous scale, deep workflow integration, a highly engaged installed base, and strong cash generation. In Q1, Acrobat AI Assistant ARR grew about threefold year over year, Express is now used in 99% of U.S. Fortune 500 companies, and creative freemium monthly active users crossed 80 million (up 50% year over year). Those are not the sorts of signals you would typically expect from a business being left behind.
When pairing the $25 billion authorization with record cash flow, double-digit revenue growth, notable product traction in AI-focused areas, and a cheap valuation, I think Adobe stock looks attractive.
