Figma's Post-IPO Plunge Underscores AI Cost Realities and Valuation Caution

What happened

Figma's 2025 IPO saw shares surge to $115.50 initially, fueled by hype around its design platform and AI capabilities. However, the stock has since plunged over 70% to $31.60, as a recent Barron's article frames it as a cautionary tale where investors bought into AI optimism without sufficient scrutiny. DeepValue's report reveals that while Q3 2025 revenue grew 38% year-over-year with net dollar retention at 131%, non-GAAP gross margins have compressed due to rising AI infrastructure costs, pressuring profitability. Market sentiment has shifted from IPO exuberance to a cautious hold consensus, with analysts lowering price targets amid concerns over growth deceleration and execution risks. This trajectory highlights the challenge Figma faces in transitioning from hype to sustainable, profitable expansion in a volatile post-IPO environment.

Implication

The sharp decline from IPO highs underscores the peril of chasing AI hype without verifying unit economics, especially for stocks with premium valuations. Figma's current price at ~14-15x sales demands proof that revenue growth can sustain in the high-20s to low-30s range while net retention stays above 125% and margins stabilize. Near-term catalysts like Q4 2025 results and FY26 guidance will be critical to assess whether AI costs are manageable and pricing changes boost ARPU without customer backlash. Long-term investors might consider gradual accumulation if execution improves, but must size positions cautiously and watch for thesis breakers such as NRR dropping below 120% or growth slowing below 25%. Overall, the risk-reward favors patience, with upside contingent on Figma demonstrating that AI features enhance stickiness and profitability over the next 6-12 months.

Thesis delta

The new article reinforces the DeepValue report's existing caution on AI-driven volatility and valuation reset, but does not alter the core thesis. It emphasizes market skepticism that aligns with our view: Figma must show tangible progress in AI economics, such as stabilized margins and sustained high net retention, to justify a re-rating. Thus, the thesis remains a potential buy at attractive entry points like $28, pending validation from upcoming quarterly execution against guided metrics.