The Inside Story Behind Adobe’s (ADBE) $12B Stock Buyback Program

Shares of creative software pioneer Adobe (ADBE) have stalled in recent weeks, drifting lower and showing little to no bullish momentum over the past month. Over the past year, the stock has slid by more than 36%. Yet beneath the surface, there’s more to the story than the stock’s sluggish performance suggests.

As I mentioned in my previous coverage, it’s somewhat understandable that, in the middle of a bull market driven by a disruptive technological trend like AI, a leading company showing even a slight slowdown in subscription growth instead of a sizable boost (as reflected in Adobe’s annual recurring revenue metric) can shake confidence in its moat—even though nearly all other profitability metrics tell a very different story.

Because Adobe’s investment case is caught between narrative and fundamentals, management—fully aware of the company’s underlying strength—hasn’t just relied on words. They’ve personally bought shares and deployed a large portion of the firm’s robust cash flows to repurchase stock at record levels.

This reflects what I see as a clear emotional misalignment between price and value. At some point, when the market becomes more rational, fundamentals tend to take over, and momentum shifts in favor of the bulls. Given the asymmetric setup, I continue to believe that staying constructive on ADBE is the right call—the bullish stance remains warranted.

Adobe’s Insiders Are Sending a Clear Message

Executives sell shares for all kinds of reasons, but they buy them for only one: because they believe the price will rise. Looking at insider activity at Adobe—those who, in theory, know the company better than anyone else—over the past six months (a period when the stock’s market value dropped roughly 15%), insiders collectively added about 4.8% to their total holdings, a net purchase of approximately 38,000 shares, while only 149 shares were sold.

That’s an unusual pattern for a large-cap company, especially a mature SaaS name like Adobe, where insiders usually sell more than they buy. Large-cap executives typically receive regular stock grants and often diversify by selling part of them. So, when there is clear net insider accumulation—and especially one this skewed (27 purchases for every sale)—it represents a strong signal of genuine internal confidence.

Two Sides of the Adobe Trade

While insiders show strong confidence in Adobe’s thesis, hedge fund positioning tells a different story. Since mid-2024, there has been a sharp decline in institutional exposure, with ADBE’s share price moving almost in lockstep with hedge fund outflows.

The sentiment here is clearly defensive at the institutional level, and the drivers behind this reduction appear to be tactical rather than structural.

Hedge funds, by nature, need to consistently outperform the market to please clients, which often leads them toward high-momentum, high-flow trades rather than long-term compounders. Adobe, in that context, falls victim to a rotation away from “growth/software”—partly due to a higher-rate macro backdrop, and partly because of lingering caution around the timing of AI monetization, especially while mega-cap peers continue to dominate headlines as the current “AI darlings.”

Broadly speaking, when insiders are buying while hedge funds are selling, it reflects a clear divergence between the two types of smart money. The operational smart money—those who understand the business from the inside—is positioning for long-term value, while the financial smart money is playing defense in the short term.

In other words, there’s a strong case that Adobe’s current setup reflects an emotional misalignment. The market may be afraid of the near term, but those who know the numbers best seem to believe that the next cycle is already starting to take shape.

From a technical standpoint, this divergence is also visible in the charts. Under the lens of moving averages, Adobe’s short-term price has already drifted too far below its long-term trend—essentially, the market has overshot to the downside. The gap between the current price and the 200-day SMA (nearly –50 points) highlights a meaningful technical discount, especially given that insiders are buying right into this divergence.

Buybacks and Balance Sheet Discipline Define Adobe’s Turnaround

Perhaps the most pronounced display of confidence in Adobe’s turnaround from the company’s executives is the recent capital allocation moves.

Over the past twelve months, Adobe has repurchased $11.8 billion worth of stock—the largest amount in its history over a one-year period—effectively canceling nearly 5% of its shares outstanding. That follows additional buybacks of 3.7% in 2024, 1.2% in 2023, and 2.9% in 2022.

Even for those who argue that this could represent poor capital allocation, Adobe has been doing quite the opposite of underinvesting. The company has accelerated R&D spending from 16% and 17% of revenue in 2022 and 2023, respectively, to above 18% in 2024 and over the past twelve months, while simultaneously reducing SG&A expenses.

All of this has been made possible by Adobe’s powerful free cash flow generation ($8.7 billion in the last twelve months), which gives the company a rare ability to fund double-digit organic growth through R&D while also sustaining record buybacks and operating margins near 45%.

Is ADBE a Buy, Hold, or Sell?

The vast majority of Wall Street analysts remain bullish on ADBE. Of the 26 ratings issued over the past three months, 18 are Buy, seven are Hold, and only one is Sell. Despite that optimism, there’s also a clear sense that Adobe’s valuation looks inexpensive, with an average target price of $463.83, implying a potential upside of almost 40% over the next twelve months.

Adobe’s Fundamentals Still Outweigh the Fear

The main signs of internal confidence among Adobe’s executives are clear, yet market pessimism—primarily fueled by the “AI loser” narrative—continues to weigh on the stock. In my view, Adobe’s current price levels are already depressed enough to absorb further bearish sentiment, creating an attractive asymmetry in the thesis given the company’s solid fundamentals and steady progress in reshaping its AI narrative. I remain constructive on Adobe, focused on the long term, and reaffirm my Buy rating.