Figma Stock Gets Its First Ratings From Wall Street. What Analysts Think About the Hot IPO.

Figma stock soared in its first day of trading, but has been falling since. (Michael Nagle/Bloomberg)

Figma stock was falling sharply on Monday after a host of investment banks released their first research notes on the design-software company.

Shares were down 4.9% to $73.52 on Monday.

Figma’s initial public offering last month was an instant hit. Shares soared 250% in their first day of trading. But the stock has surrendered over 30% of its gains as of Friday’s close, and most analysts are approaching the company with caution.

The consensus on Wall Street is that Figma is a high-quality business with a high-quality product. However, questions remain about how much artificial intelligence will encroach on its business and whether the market has already priced in Figma’s growth.

Created with Highcharts 9.0.1Figma stock priceSource: FactSetAs of Aug. 26

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“Figma is the industry standard in product design software,” wrote Morgan Stanley’s Elizabeth Porter in a research note on Monday. The platform allows users to consolidate workflows across various stakeholders in design, from user-experience designers to developers to product managers. That comprehensive approach gives Figma a long runway in what Morgan Stanley estimates to be a $26 billion addressable market, Porter said.

Generative AI presents a potential hurdle because it could automate some design jobs, causing Figma’s seat-based pricing model to backfire. But Figma could also benefit from generative AI, specifically the company’s AI product Figma Make, Mark Murphy of J.P. Morgan wrote in a research note on Monday.

“A key overarching debate is whether Figma is on the right or wrong side of AI,” Murphy said. “We lean positively on its positioning and potential in the near to intermediate term.”

Rather than AI, the main issue facing Figma stock may be its lofty valuation. Morgan Stanley and J.P. Morgan issued their equivalent of Hold ratings with $80 and $65 price targets, respectively.

“We view Figma as a market-leading platform, but valuation at a market-leading multiple is pricing a long runway for growth, limiting the near-term risk/reward and leaving us on the sidelines,” wrote Porter from Morgan Stanley.

Alex Zukin of Wolfe Research had a similar view. Figma is at the top of the product-design pyramid in terms of uptake and retention, Zukin said, but today’s share price already reflects that positioning. Wolfe initiated coverage with a Peer Perform rating, also the equivalent of Hold, with no price target.

At least one Wall Street firm sees the stock as still having room to rise, though. Arjun Bhatia of William Blair issued an Outperform rating, the equivalent of Buy, and a $96 price target, implying a 24% gain from Friday’s close of $77.30.

Figma ended trading Friday at 34 times William Blair’s 2026 revenue estimates, a significant premium compared with its peer group. That premium is warranted given its “best-in-class financial metrics,” the firm said.

“Our forward estimates are conservative,” Bhatia wrote. “As the company delivers upside to estimates over the next several [quarters], we believe the stock will show similar momentum.”

The flurry of research notes was expected. It has now been 25 days since Figma went public, ending the so-called quiet period when IPO underwriters are barred from publishing research on the company. Investors can expect more debate over Figma’s valuation and the threat AI may pose in the weeks ahead.

Write to Nate Wolf at nate.wolf@barrons.com