Design Software Giant Figma Stock Tumbled as Industry Faces AI Disruption Fears

The market delivered a harsh reality check to design-focused cloud software Figma as shares tumbled amid a broader software sector collapse. On a trading day marked by widespread sell-offs, Figma descended further into bearish territory, approaching all-time lows with a 9.4% decline. What makes this particularly striking is that Figma hasn’t even reported its latest quarterly results yet—but the company’s previous two earnings reports as a public entity have been nothing short of impressive. The real culprit isn’t Figma’s operational performance; it’s the market’s existential anxiety about artificial intelligence.

Why the Entire Software Sector Tumbled

The software industry experienced a coordinated sell-off driven by disappointing commentary from sector heavyweights. ServiceNow, despite beating earnings expectations with a robust 21% subscription revenue growth in Q4 and guiding for similar growth in 2026, still watched its stock crater. Microsoft delivered strong quarterly results but signaled slowing consumer business growth. German software giant SAP added fuel to the fire with weaker-than-expected guidance.

Here’s the crucial distinction: these aren’t stories about companies failing to execute. Rather, investors are fundamentally reassessing whether software companies deserve the premium valuations they’ve historically commanded. The sector has benefited from years of faith in the cloud subscription model and impressive gross margins, but that narrative is fracturing under the weight of AI concerns.

The AI Disruption Narrative Reshaping Software Valuations

Software stocks have been particularly vulnerable to AI-driven disruption fears, especially in segments like design where generative AI tools have democratized capabilities that previously required professional expertise. The concern isn’t theoretical—it’s about revenue cannibalization and the potential erosion of software companies’ competitive moats.

What’s striking about the current environment is that strong financial performance—exactly what investors previously demanded—is no longer sufficient to counter the longer-term anxiety. Management commentary that would have inspired confidence in prior market cycles now gets dismissed as short-term window dressing obscuring larger structural challenges.

The rerating of software valuations reflects investors questioning whether these companies can maintain their historical growth trajectories and margins once AI-powered alternatives become ubiquitous.

Figma’s Performance Paradox: Strong Results, Weak Stock Price

Figma’s case exemplifies this troubling disconnect. The company has delivered strong growth in both of its earnings reports as a public company, yet the stock has plunged approximately 80% from its post-IPO peak reached last August. This isn’t a story of execution failure—it’s a story of market psychology overpowering financial results.

The company is scheduled to report Q4 earnings on February 18, with analysts forecasting $293.2 million in revenue and $0.06 adjusted earnings per share. Markets will be watching whether management commentary can successfully challenge the AI disruption narrative that has crushed the stock, or whether the company will face continued pressure regardless of how strong the numbers appear.

What This Means Going Forward

The software sector’s current turmoil reflects a broader market repricing event. Investors who previously accepted premium multiples based on perceived resilience are now demanding a margin of safety—particularly for companies operating in spaces where AI could pose existential challenges.

For Figma specifically, the biggest test won’t be financial performance; it will be whether the company can articulate a compelling strategy for navigating an AI-augmented design landscape. Until that narrative shifts, even solid quarterly results may struggle to move the stock needle.

The historical lesson is instructive: when Netflix made the Motley Fool’s recommended list on December 17, 2004, a $1,000 investment became $456,457. When Nvidia appeared on April 15, 2005, the same investment grew to $1,174,057. The software stocks tumbled today face a similar crossroads—those that successfully adapt to the AI era could deliver outsized returns, while those perceived as vulnerable could face years of valuation pressure regardless of quarterly earnings strength.