Figma stock falls as Google AI Stitch sparks design software fears

Figma shares extended their decline this week as investor concerns over artificial intelligence competition intensified following the launch of a new design-focused product from Google.

The stock dropped 8% on Wednesday and fell more than 4% on Thursday, taking its losses to about 35% for the year.

The selloff reflects broader pressure across the software sector, as markets reassess the impact of AI-driven disruption on traditional business models.

Google’s Stitch raises competitive concerns

On Tuesday, Google introduced Stitch, an AI-powered design tool currently in beta that allows users to generate project designs using simple prompts.

The company described the feature as a “design agent” capable of providing real-time design critiques and responding to voice input.

While Stitch is not yet monetized and comes with no clear timeline for broader availability, its feature set has raised concerns about increasing competition in the design software market.

The tool overlaps with core capabilities offered by Figma, particularly in areas such as interface design, prototyping, and collaborative workflows.

Investors are increasingly focused on whether large technology firms with extensive resources and distribution networks could reshape the competitive landscape.

Google’s broader ambitions in this space were further underscored by updates to its AI Studio roadmap.

In a post on X, Logan Kilpatrick outlined upcoming features, including “design mode,” “Figma integration,” and deeper connections with Google Workspace and GitHub.

These developments highlight how rapidly major platforms are expanding their presence in AI-assisted product design and “vibe coding,” a term increasingly used to describe prompt-based software creation.

Market reaction reflects AI disruption fears

The reaction in Figma’s share price underscores how sensitive software valuations remain to perceived AI threats.

Despite positioning itself as a beneficiary of AI adoption during its July public listing, the company is now facing renewed scrutiny over its competitive positioning.

The company had previously attracted significant attention when Adobe attempted to acquire it in 2023 for $20 billion, a deal that was later terminated due to regulatory challenges.

Adobe shares have also come under pressure, declining about 4% over the past two days.

Analysts note that if Google eventually commercializes Stitch, it could represent a strategic move to capture more of the product design workflow while keeping users within its enterprise ecosystem.

Analysts weigh outlook as momentum stabilizes

According to TipRanks data, out of 9, 3 analysts gave a buy rating while 6 have a hold rating.

The average target price is $40.25, indicating a 66% upside.

Recent actions include RBC Capital assigning a Sector Perform rating with a $31 target, Stifel maintaining a Hold rating with a $30 target, and Wells Fargo reiterating an Overweight rating with a $42 target.

Technical indicators suggest some stabilization may be underway.

Figma’s relative strength index (RSI) has moved back toward neutral territory after dipping into oversold levels, indicating that selling pressure may be easing.

At the same time, the company continues to invest in AI capabilities through partnerships, including collaborations with Anthropic and Google to integrate generative AI into its platform.

However, as competition intensifies and major technology firms expand their AI toolkits, investors remain focused on whether Figma can maintain its position in an increasingly crowded and rapidly evolving design software market.