Figma's Stock Is Trading Like Artificial Intelligence (AI) Will Destroy Its Business. But Is That Really the Case?

Key Points
Concerns about artificial intelligence (AI) diminishing the need for software have crippled Figma's stock.
Figma helps people collaborate on design projects, and it has incorporated AI into its software.
The company's financial results suggest that it's doing just fine.
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Artificial intelligence (AI) can change the way many things are done, including photo editing. With the help of chatbots such as ChatGPT, it's easy for someone with no photo editing experience whatsoever to create a polished image that's suitable for use in a professional environment.
As a result, software stocks have been falling sharply in value amid concerns that they won't be needed. Figma (NYSE: FIG) is a prime example. Its software helps users collaborate and work together on websites and design projects. Since going public last year, the stock has lost more than 70% of its value.
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Investors are trading the tech stock as if its business is hopeless. But here's why that could be a big mistake.
Why Figma's business might not be doomed
AI can certainly help create images and websites, but that doesn't mean that AI can do it all. Whether it's coding or image editing, oftentimes humans are needed to make edits to ensure everything is correct and to fix any mistakes.
With the help of AI, people can complete a task much more quickly and do more with less. And from that viewpoint, businesses may need fewer people subscribed and using software such as Figma, but that's entirely different than saying it won't be needed at all.
Figma still provides value for collaboration purposes. Plus, it has even incorporated AI tools. With Figma Make, users can create an app or data dashboard with a prompt. Not only is Figma not doomed due to AI, but it's leveraging it and incorporating it into its software.
Figma's numbers suggest the company is doing just fine
Another reason to remain optimistic about Figma is that its business is still doing exceptionally well. During the last three months of the year, the company's sales rose by 40%, as its top line came in at $303.8 million. Its guidance for the first quarter also suggests a 38% growth rate -- not the sharp fall off you might expect from a business in a dire situation. The company also has a net dollar retention rate of 136%, which means customers are spending more with the business, not less.
The market appears to be overly punitive on Figma's stock amid AI fears. Given its vast decline over the past several months and the bearishness around its business, if you can stomach the volatility, Figma could make for an intriguing contrarian investment to hold on to. I think the business is in far better shape than the performance of its share price would suggest.
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David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Figma. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.