The narrative surrounding the impact of generative artificial intelligence on the software industry has experienced severe turbulence over the past year, as investors rushed to penalize companies perceived as vulnerable to the new technology. One of the most prominent casualties of this trend was the collaborative design platform Figma, which saw its public valuation slashed by a sharp 85% from its 52-week high. However, a report published Tuesday by Bank of America marks a watershed moment for the company. In a strategic decision to resume coverage with a “Buy” rating and a $30 price target, the bank is signaling to the market that the panic surrounding the stock was wildly overblown. In an economic environment where asset managers are desperately seeking stable business models, the current valuation is perceived as a highly attractive entry point for institutional capital seeking exposure to fundamentally sound technological growth.

Market Psychology and the AI Paradigm Shift

The primary mental bias that drove the aggressive sell-off stemmed from the fear that automated tools would commoditize designers’ work and reduce the need for dedicated enterprise workflows. Yet, Bank of America’s in-depth analysis, led by analyst Tal Liani, deconstructs this thesis and presents the exact opposite picture. The firm’s constructive approach argues that AI acts as a supportive catalyst rather than a debilitating headwind. While generative technologies accelerate initial content creation and make it accessible to more team members, the direct result is a dramatic increase in the number of individuals involved in building digital products. This process generates unprecedented complexity in cross-functional organizational workflows, which only amplifies the strategic imperative for a centralized, intuitive, and reliable collaboration platform like the one Figma provides.

Inelastic Demand and Uncompromising Enterprise Momentum

Conclusive proof of this shifting momentum on the ground can be found in the official financial data for the first quarter of 2026, which indicates a high willingness among corporations to open their wallets for the platform’s premium services. The most impressive metric reveals that 75% of enterprise clients purchased additional AI credits after exceeding their initial usage limits—a clear signal of deep engagement and inelastic demand. This engagement translates directly into the top line, with the core enterprise segment, generating over $100,000 in Annual Recurring Revenue (ARR), surging by 48% year-over-year. Furthermore, the company boasts a phenomenal Net Revenue Retention (NRR) rate of 139%, alongside a 54% growth in paying users. These figures demonstrate extreme product stickiness and significant pricing power, characteristics that hardly align with a company under existential threat.

Glaring Undervaluation in a Competitive Landscape

An examination of valuation multiples highlights a distinct market distortion created by the shockwaves of the AI trend. Figma currently trades at approximately 5 times its estimated Calendar Year 2027 Enterprise Value to Sales (EV/Sales) ratio, a figure significantly lower than the software industry average of 5.9 times. This discount is particularly perplexing given the company’s superior growth profile. The firm’s new price target relies on a healthier 8x EV/Sales multiple for 2027, reflecting confidence in the consistent improvement of operating profitability metrics. According to forecasts, Figma’s operating margin and free cash flow are expected to expand from 9.2% and 11.3% in fiscal year 2026 to 13.8% and 16.2%, respectively, by the end of fiscal year 2028. This is a classic expansion profile of a software company reaching operational maturity.

Looking Ahead

Bank of America’s reassessment holds a mirror up to Wall Street, illustrating how blind technological panic can create a valuation vacuum for established market leaders. Figma, it appears, has successfully navigated the storm, transforming what was perceived as the greatest threat to its model into its primary monetization engine for the coming years. Now, the true test shifts to the execution arena of the company’s management in the upcoming quarters. To justify the ambitious price target and permanently close the valuation gap with the broader sector, Figma will need to prove to investors that corporate AI adoption rates are not a passing wave of experimentation, but rather a robust infrastructure that continues to generate consistent, expanding, and highly lucrative free cash flow.