Why Figma Stock Just Crashed - The Brutal Reality Behind This Week’s Plunge

Figma's stock just got hammered—another tech darling learning Wall Street's fickle love comes with brutal strings attached.

Market Shockwaves Hit Design Giant

No fancy jargon—just pure market mechanics kicking in. When growth projections waver, investors bolt faster than you can say 'overvalued.' Figma's facing that classic tech squeeze: soaring expectations meet harsh reality.

The Valuation Reckoning

Every high-flying stock eventually faces gravity. For Figma, this week was that moment. The numbers don't lie—when momentum stalls, the big money heads for exits, leaving retail bag-holders staring at red screens. Classic pump-and-dump? Looks familiar.

Another reminder that in traditional markets, you're always the last to know—and the first to pay the price.

Image source: Getty Images.

Stock valuations matter

Figma reported solid quarterly results. Revenue at the designer of cloud-based work collaboration tools jumped 41% year over year. The company was also profitable with positive cash flow. But its outlook for third-quarter revenue implied year-over-year growth WOULD slow to 33%.

That's still strong growth, but the recent euphoria for the stock already has that priced in. Figma stock is trading at about 185 times earnings estimates for this year, even after this week's plunge. It also trades at a price-to-sales (P/S) ratio of more than 25 based on this year's revenue estimate. That's too high for a software stock.

In some cases, overvaluation can last months or even years from investor faith in the future promise of a company., for example, is a trillion-dollar company that still trades at a forward price-to-earnings (P/E) ratio of about 200. That's because investors see huge potential in its robotaxi and humanoid robot products. If huge sales increases from those products don't materialize, Tesla stock will also likely crash at some point.

Figma is a different animal. Its design software offerings are growing, but there are concerns that artificial intelligence (AI) could overtake the need for some software products. Investors interested in owning Figma might want to wait for a more reasonable valuation.