This Artificial Intelligence (AI) Stock Is a Drop-Dead Bargain. And It Might Not Last Long

For all the excitement around the AI boom, the IPO market has been relatively quiet in recent years. In fact, the only major software-as-a-service stock (SaaS) to go public in the last year is Figma (NYSE: FIG), the maker of cloud-based UX/UI (user-experience, user-interface) software.

At this point, Figma is looking like a broken IPO. The stock listed at $33 a share and immediately jumped after going public on July 31, hitting a high of $142.92 the following day before giving up nearly all of those gains.

Figma closed at $37.33 on Jan. 9, just slightly above its IPO price, down nearly 75% from its peak shortly after the stock went public.

IPOs tend to be volatile, but this one has been especially so. Figma's reported earnings twice since it went public, and both times it has disappointed the market, even though its results were strong.

At the current price, the stock now has a market cap of $18.5 billion, and while it doesn't look like a bargain by traditional valuation metrics, there are a few reasons why the stock looks like a smart buy right now.

Image source: Getty Images.

It's cheaper than Adobe's price

In 2022, Adobe agreed to acquire rival Figma for $20 billion. The deal was broken up by regulators on antitrust grounds, leading to Figma's IPO last year. However, it's notable that Figma's market cap is now below where Adobe valued the company four years ago, when it was much smaller, and AI hadn't even entered the public conversation. After all, that deal was announced before ChatGPT was launched.

There's no question that Figma's fundamentals are much stronger than they were then, meaning that the price that Adobe would be willing to pay for it now would likely be much higher. Adobe did offer a substantial premium for Figma, as most acquisitions go, but that price tag should serve as a floor for the stock.

It's making big moves in AI

At a time when AI stocks are soaring, most companies are being rewarded for investing in AI. However, Figma was punished by Wall Street for saying that investments in AI would cut into its profit.

It makes sense for Figma to invest in AI, as UX/UI is a natural fit for chat and prompt-based tools. It launched Figma Make, a prompt-to-app tool to generate code, Figma Sites, which allows designers to publish fully responsive websites from Figma designs, and Figma Buzz, an AI-based tool for brand and marketing teams.

It also acquired Weavy, an AI-powered designed interface, which has been rebranded as Figma Weave.

Software appears to be at a tipping point in AI, and having these kinds of tools could make Figma the dominant company in web design software.

The numbers are impressive

Figma continues to deliver strong growth with revenue up 38% to $274.2 million in the third quarter. Adjusted operating income was $34 million, showing the company is still solidly profitable.

The company has a history of being profitable on a generally accepted accounting (GAAP) basis though one-time non-cash expense in the third quarter related to the IPO led to a large GAAP.

Based on run rate revenue, Figma is trading at a price-to-sales ratio of roughly 15 after backing out $1.5 billion in cash and marketable securities.

Compared to other software stocks, that looks like a very reasonable valuation, especially considering its investments in AI and profitability. Factor in Adobe's validation of the company, and there's a lot going for Figma right now. From its current price, the stock looks like a good candidate to double or better this year.

Jeremy Bowman has positions in Figma. The Motley Fool has positions in and recommends Adobe and Figma. 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.