When there's a massive sell-off in a stock's value, it usually means either the business is struggling mightily, and there are serious concerns about its prospects, or there's been a tremendous overreaction in the markets.
So what explains what's happening to Figma (FIG 5.03%), a software design company that went public less than a year ago? Given all the growth it was achieving and the rosy expectations for its business, investors never stayed bullish on the stock. The stock is in the midst of what's become a seemingly endless free fall. In its second day of trading (back on Aug. 1, 2025), it hit a high of $142.92. On Monday, it traded at around $24. That's a mammoth six-month decline of 83%.
Is there something fundamentally wrong with Figma's business that has growth-oriented investors justifiably worried about it, or is this another case of market overreaction, and could this be a no-brainer stock to buy right now?
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Is Figma's business in bad shape?
The question you might be asking is whether Figma's business is in real trouble, given its sharp sell-off. Ultimately, it may depend on your outlook for artificial intelligence (AI) and what it might mean for the demand for Figma's software. With AI and chatbots, it's easier than ever for people to create polished images and designs. The concern may be that Figma's software isn't needed anymore, or at the very least, that its growth opportunities will dry up.
Figma's software is more than just about design, however. It can help users build apps and code, and it can help people with no coding experience to build apps with the help of AI.
What can be more telling for investors is the company's guidance, which can provide an indication of just how well the business is growing. In the company's most recent quarter, which went up until the end of September, Figma's revenue totaled $274 million and rose by 38% year over year. Its guidance for the fourth quarter calls for a growth rate of 35%, which is only a slight drop-off. However, improving upon an already high growth rate is no easy task for any business.
NYSE: FIG
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Why the market has overreacted on Figma
I don't think that Figma's business is in as dire a shape as the market might have you believe. The company is growing at a solid pace, and it has posted an operating profit in two of its past three quarters. In its most recent quarter, it incurred a loss due to many one-time expenses as a result of its initial public offering.
The tech stock could be an enticing and underrated buy at its current levels. While it may be tough to buy amid such a free fall, I believe it could prove to be a bargain buy in the long run.
