Is This AI Stock the Best Bargain on the Market Right Now?

It's not easy to find a good deal among technology stocks right now, especially considering how much of the broader market's rally has been driven by investments in and enthusiasm for artificial intelligence (AI).

Difficult, but not impossible. Figma (NYSE: FIG) was one of the year's hottest IPO stocks, beginning trading over the summer. But just a few months later, Figma's stock had imploded. Shares have declined about 70% from their highs.

It wouldn't be the first time a hot IPO ultimately wound up being a terrible investment. But not so fast; there could be an up-and-coming AI software winner among the rubble.

Here is why Figma could be Wall Street's best AI bargain right now.

Image source: Getty Images.

A bargain? Adobe probably thinks so.

The creative space is one of the industries most vulnerable to the impact of generative AI. Adobe (NASDAQ: ADBE), which has built an empire on its suite of creative software applications, has seen its stock tumble due to those fears. Figma, founded just a decade ago, has emerged as one of Adobe's hottest competitors.

Adobe felt threatened enough by Figma to acquire it. The two companies agreed to a $20 billion merger in the fall of 2022, but called it off under antitrust scrutiny from government regulators. Today, Figma trades at a market cap of $15 billion, a sizable discount to what Adobe was willing to pay.

Companies often overpay to get a deal done, but remember that was in 2022. Figma's revenue was just under $505 million in 2023, and analysts expect the company's revenue to surpass $1 billion this year.

From a valuation standpoint, Figma is actually far cheaper now than what Adobe agreed to pay for the company several years ago.

Why Adobe wanted Figma so badly

Figma operates a software and AI tools platform to help users design and develop user interfaces and experiences for digital products, such as websites, mobile apps, and media. Figma's web-based architecture specializes in collaboration, allowing groups of people to work on a single project in multiplayer mode, where you can even see other people's cursors on your screen.

The company has 1,262 paid customers generating at least $100,000 in annual recurring revenue, and another 12,910 generating at least $10,000. Those smaller customers have a net revenue retention rate of 131%, indicating users spend more over time, moving toward that higher category.

Figma isn't sacrificing profits to grow, either. IPO-related stock-based compensation is skewing the GAAP financials, but Figma generated positive free cash flow and net income on an adjusted basis in the third quarter. The company has $1.6 billion in cash and almost no debt.

Analysts estimate Figma's full-year revenue to be just over $1 billion, representing a 39% increase over 2024. It makes sense that Adobe would want to acquire Figma. Its healthy financials and strong growth mean it's unlikely to go away as a competitor anytime soon.

The value proposition is clear

It's time to dig a bit deeper into the value Figma stock offers at its current share price. It's never ideal to see stocks fall 70%, but that can happen when IPO stocks burst onto the scene, only to have the momentum turn in the other direction.

Figma now trades at a price-to-sales ratio of approximately 15, based on its estimated 2025 revenue. Aside from Palantir Technologies trading at astronomical valuations, broader sentiment among software stocks is currently relatively low, due to the same AI disruption fears that have weighed on Adobe.

However, Figma's AI capabilities and tools provide it with an opportunity to establish itself as a leader in the next generation of software companies, where AI is a feature, not a threat.

It appears that many of Adobe's customers have begun using Figma alongside it, and time will tell just how much mindshare and dollars Figma can capture from Adobe, still the runaway leader in creative design software.

Fortunately for investors, Figma has arguably become a bargain, where the potential rewards outweigh the risks for investors willing to buy and hold the stock as events unfold over the coming years.

Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Adobe and Palantir Technologies. The Motley Fool recommends the following options: long January 2028 $330 calls on Adobe and short January 2028 $340 calls on Adobe. The Motley Fool has a disclosure policy.