After Figma's spectacular IPO debut where shares more than doubled from $33 to $85, the investment banking community just delivered their verdict: slow your roll.
Morgan Stanley, J.P. Morgan, and RBC Capital Markets all initiated coverage today with neutral ratings as the post-IPO quiet period ended. The message is clear: Figma's current $37.6 billion market cap far exceeds what these firms think the company is worth right now.
The Valuation Math Doesn't Work
Morgan Stanley analysts put it bluntly: "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."
That's Wall Street speak for "this stock is too expensive." When investment banks that led your IPO immediately tell investors to hold rather than buy, you know expectations got ahead of reality.
The numbers are stark. Figma's current market value nearly doubles the $20 billion price tag from Adobe's abandoned acquisition attempt in December 2023. Adobe walked away after regulatory pressure, but that $20 billion figure now looks like a bargain compared to public market pricing.
Design Tools Market Gets Crowded
The competitive landscape that spooked analysts isn't theoretical. Design software companies are aggressively integrating AI tools that automate tasks and cut costs. Every major player from Adobe to Canva to smaller startups is racing to build AI-powered design assistance.
Figma acknowledged this threat in their IPO filing, warning they could lose market share to rapid AI adoption. That's unusual honesty for an IPO document, but it reflects the real pressure they're facing.
Traditional design workflows that required skilled human designers are being automated. AI tools can now generate user interfaces, create graphics, and iterate on designs based on text prompts. While this expands the potential market, it also commoditizes some of Figma's core value proposition.
The AI Opportunity vs. Threat Debate
Not all analysts see AI as purely negative for Figma. RBC Capital noted: "While investors may have concerns that AI may simplify application design/development, therefore competing with Figma, we believe AI could be a real tailwind for Figma."
This optimistic view suggests AI could expand Figma's addressable market by making design accessible to non-designers. Instead of cannibalizing their professional user base, AI tools could bring new users who wouldn't have used design software previously.
The reality is probably more nuanced. AI will likely eliminate some traditional design work while creating new opportunities. Figma's success depends on staying ahead of this transition rather than being disrupted by it.
Customer Quality Remains Strong
Despite valuation concerns, Figma's customer roster is impressive. Netflix, Airbnb, and Duolingo rely on their platform for design collaboration. These aren't small startups - they're large companies with sophisticated design teams and significant budgets.
The enterprise adoption suggests Figma has built genuine switching costs and network effects. Design teams that standardize on Figma find it difficult to migrate to competing platforms due to existing workflows, file formats, and collaboration patterns.
But enterprise customers are also price-sensitive and will evaluate alternatives if Figma's pricing becomes unreasonable or if competing platforms offer superior AI capabilities.
The Post-IPO Reality Check
Figma's neutral ratings reflect a common pattern for high-growth SaaS companies going public at premium valuations. Initial investor enthusiasm drives prices up, then fundamental analysis brings expectations back to earth.
The company needs to prove they can grow into their valuation through revenue expansion, margin improvement, or both. At current prices, investors are betting on several years of strong execution in an increasingly competitive market.
Wall Street's lukewarm reception doesn't mean Figma is doomed, but it does mean the easy money phase is over. The company now has to deliver results rather than just promise potential.
What This Means for the Design Software Market
The neutral ratings signal that public market investors are getting more sophisticated about design software valuations. The days of unlimited growth multiples for any company with "collaboration" and "AI" in their pitch deck are ending.
This could actually benefit Figma long-term by reducing competitive pressure from overfunded startups. If public markets are skeptical of design software valuations, venture funding for Figma competitors will likely become more constrained.
The real test comes in the next few quarters. Figma needs to demonstrate they can maintain growth rates while defending against AI-powered competition. If they succeed, today's neutral ratings could look overly conservative. If they struggle, these analysts might look prescient.