Is Figma's 70% Drop a Buying Opportunity or a Warning Sign?

The recent 70% selloff in Figma (NYSE: FIG) has sparked intense debate among investors and analysts. At the heart of this debate lies a stark divergence in valuation narratives: one suggesting the stock is undervalued at $65.70 per share, and another, rooted in discounted cash flow (DCF) analysis, estimating intrinsic value at just $19.69 based on DCF analysis. This chasm reflects not only differing assumptions about Figma's growth potential but also broader questions about the sustainability of its market position in a fiercely competitive landscape. To assess whether the selloff represents a buying opportunity or a warning sign, we must dissect these valuation narratives, evaluate Figma's growth tailwinds and competitive risks, and gauge whether the market has overcorrected or priced in a realistic future.

The Valuation Divide: DCF Conservatism vs. Investor Optimism

The DCF model, a cornerstone of fundamental analysis, projects Figma's intrinsic value at $16.46–$19.69 per share, far below its recent trading range of $35.69–$52.91 according to market data. This approach hinges on conservative assumptions about free cash flow growth, capping projections at $638.7 million by 2035. By contrast, the bullish narrative-advocated by investors and some analysts-estimates a fair value of $65.70, predicated on aggressive revenue compounding, margin expansion, and Figma's dominance in enterprise design workflows according to industry reports. The disparity underscores a critical question: Is Figma's current valuation a reflection of its intrinsic worth, or is it a mispricing driven by market exuberance?

The DCF model's pessimism is partly justified by Figma's lofty price-to-sales (P/S) ratio of 27.85x, which far exceeds both its peer average (9.82x) and the broader software industry average (5.24x) as reported by market analysts. Such a multiple implies that investors are paying a premium for growth, not just for current earnings. However, the bullish narrative argues that Figma's unique value proposition-its 95% adoption rate among Fortune 500 companies and its AI-driven tools like Figma Make and Buzz according to product reports-justifies a premium. These tools, which automate design processes and democratize design creation, could expand Figma's total addressable market by enabling non-designers to participate in workflows.

Growth Tailwinds: Enterprise Adoption and AI Innovation

Figma's growth story is anchored in two pillars: enterprise adoption and AI integration. As of June 30, 2025, the company reported 1,119 paid customers spending over $100,000 annually, with net dollar retention for high-ARR customers reaching 131% in Q3 2025 according to financial reports. This retention rate, coupled with a 41% year-over-year revenue increase in Q2 2025, suggests strong customer loyalty and pricing power.

AI has further amplified Figma's appeal. The company's AI-powered tools, such as Figma Weave and Make, are already used weekly by 30% of its high-ARR customers. These tools not only streamline design workflows but also position Figma to compete with Adobe and Atlassian in AI-driven productivity. Adobe, for instance, reported $5.99 billion in Q3 FY 2025 revenue, driven by AI tools like Firefly, while Atlassian has partnered with OpenAI to enhance its collaboration platforms. Figma's edge lies in its real-time collaboration features and design system capabilities, which are particularly attractive to UI/UX teams according to industry analysis.

Competitive Risks: The Threat of Incumbents and Niche Players

Despite its strengths, Figma faces significant competitive risks. Adobe, with its entrenched Creative Cloud ecosystem, remains a formidable rival. Adobe's AI-driven tools emphasize brand-safe content generation, a niche where Figma's focus on workflow automation may not fully overlap. Similarly, Atlassian's integration of generative AI into its collaboration tools threatens to erode Figma's market share.

Niche players like Framer and Miro also pose challenges. Framer appeals to teams prioritizing speed and development integration, while Miro's digital whiteboard capabilities make it a preferred tool for ideation and process modeling. Figma's 40.65% market share in design tools is impressive, but it must defend this position against rivals offering specialized features.

Market Sentiment Post-Selloff: Correction or Overcorrection?

The 70% selloff has brought Figma's valuation closer to a "more realistic" level, according to some analysts. The stock now trades at a P/S ratio of 27.85x, down from a peak of 45x, and its average 1-year price target of $62.86 suggests a consensus of cautious optimism. However, the selloff may have overcorrected. Figma's fundamentals remain robust: it has a $1 billion annual revenue run rate, and its AI tools are gaining traction.

The selloff appears to reflect broader tech market volatility rather than a fundamental flaw in Figma's business model. As one analyst noted, "The drop has priced in many of the risks, but the company's long-term growth potential remains intact for patient investors".

Conclusion: A Nuanced Verdict

Figma's 70% selloff is neither a clear buying opportunity nor a definitive warning sign. The DCF model's conservative estimate of $19.69 highlights the risks of overvaluation, particularly given Figma's high P/S ratio and competitive pressures. However, the bullish narrative's $65.70 fair value is not entirely unfounded, as Figma's enterprise adoption, AI innovation, and strong retention metrics suggest durable growth.

For investors, the key lies in balancing these narratives. If Figma can sustain its 40%+ revenue growth while expanding margins through AI-driven efficiency, the $65.70 target may prove achievable. Conversely, if competition from Adobe and Atlassian intensifies or AI adoption falters, the DCF estimate could serve as a floor. The selloff has undoubtedly priced in many uncertainties, but whether it has overcorrected depends on Figma's ability to execute its vision in a rapidly evolving market.