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I have an Azure DevOps installation backed by an AAD for authentication. I want to give Stakeholder access to users outside of my organization. They have an on-prem AD with ADFS and would prefer to use that for authentication.

The way I have done this the past is to add a custom domain to my existing AAD and invite users to sign up for new accounts using their email from their own domain.

Is it possible to use ADFS to federate users from another domain into an AAD instance and if so will Azure DevOps support this?

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Use the new direct federation and B2B to invite these users to your AAD (or the AAD which manages your DevOps) and give them access. Direct federation would enable these users to continue authenticating with their corporate accounts, using their AD.