The year's biggest Technology IPO is here! With Figma set to go public, will it boost the AI software stocks?

This Thursday (July 31), the design software giant $Figma(FIG.US)$ is set to debut on the U.S. stock market.

According to Figma's latest prospectus, the company plans to issue approximately 37 million shares, with a price range of $25 to $28 per share. At the upper end of the price range, the IPO could raise up to $1 billion, valuing the company at $16.4 billion on a fully diluted basis. In 2022, Adobe had proposed to acquire Figma for $20 billion, but the deal was canceled due to opposition from regulatory authorities.

Some observers suggest that Figma's listing could surpass the cloud computing platform CoreWeave, which went public earlier this year, and become the dark horse of the largest tech IPO in 2025.

It is noteworthy that for this listing, Figma requires investors to submit limit orders rather than the more common market orders seen in traditional IPOs, in order to obtain more precise stock valuation information. This method is also known as an "auction-style IPO".

At this point, many mooers are likely curious about what an "auction-style IPO" is, how Figma is performing, and which related stocks are worth watching. The following will address these questions one by one.

What is an "auction-style IPO"?

An "auction-style IPO," also known as a "Dutch auction IPO," is a method of pricing an initial public offering (IPO). Unlike traditional IPOs where underwriters set the price, an auction-style IPO allows investors to bid publicly to determine the final issuance price of the stock. The goal is to more accurately reflect the market's judgment of the stock's value, potentially reducing underpricing and benefiting both the issuer and investors.

In the traditional Dutch auction, named after the Dutch flower market, the seller specifies the quantity of items to be sold and sets a minimum bid. Bidders then state how many items they wish to purchase and the price they are willing to pay. The winning bidders pay the same price for each item, known as the clearing price.

In IPO terms, this means that the value of the company is determined by the investors themselves, rather than by investment bankers who might set the price at which investors are willing to buy the shares.

Compared to traditional IPOs, the advantages of an auction-style IPO include:

More accurate pricing: The price in an auction-style IPO is determined by market supply and demand, thus more closely reflecting the true value of the stock.

Reduced underpricing: An auction-style IPO helps to reduce the underpricing that may occur in traditional IPOs, allowing the company to raise capital at a more reasonable price and giving investors the opportunity to buy shares at a price closer to the market value.

Increased transparency: The entire auction process is more open and transparent, reducing the possibility of manipulation.

However, these benefits come with drawbacks. Another disadvantage of the 'auction-style IPO' is known as the 'winner's curse.'

In this scenario, if earlier high bidders realize they may have miscalculated or overbid, the stock price might plummet immediately after listing. These investors may try to sell their shares to offload their holdings, leading to a sharp decline in the stock price.

However, some market views suggest that this approach can retain investors who truly recognize the company's long-term value and are willing to pay a premium, rather than attracting a group of speculative traders betting on the opening. Instead of passively accepting a market discount, it is better to use a rational mechanism to proactively control the valuation floor.

According to informed sources, Figma's requirement for limit orders aims to provide the company with more detailed information about what investors believe the stock is worth. This method, in theory, can help the company capture more hidden investment enthusiasm.

What is Figma's standing?

Figma is a leading global UI design software company. This company has completely disrupted the traditional collaboration model of design tools, allowing teams to edit interfaces, prototypes, and documents in real-time within a browser, breaking down geographical and device limitations.

The pandemic and work-from-home trend in 2020 accelerated the acceptance of cloud collaboration, with Figma's user base growing fourfold in that year. This design-driven transformation in work methods is spreading across teams, tools, regions, and industries, profoundly changing the way software products are built and delivered.

From Figma's financial data, the company shows strong growth momentum. In the first quarter of this year, its revenue grew by 46% year-over-year, from $156.2 million to $228.2 million; net income increased from $13.5 million to $44.9 million.

The company has over 13 million monthly active users, with only one-third being designers. As of March 31, approximately 85% of the monthly active users came from outside the United States, although 53% of the revenue was from overseas markets.

As of March 31 this year, the company had approximately 450,000 enterprise customers, with the number of customers contributing annual revenue exceeding $100,000 reaching 1,031, a 47% increase from the previous year. The customer list includes well-known companies such as Duolingo, Mercado Libre, Netflix, and Stripe.

Notably, Figma mentioned AI 150 times in its prospectus. According to an article by the self-media Silicon Valley 101, the managing partner of New York hedge fund Amont Partners believes that the market will buy into the AI story. This is because, frankly, the best applications of AI currently seem to be related to creative work or marketing, which are both areas where Figma operates.

In the prospectus, Figma also acknowledged the short-term impact of AI investments on profitability, stating: "In the short term, AI investments will compress our gross margin and operating profit margin... The ultimate impact on the company's business and financial condition remains uncertain at this time."

Additionally, Figma has started investing in digital currency: In 2024, the company's board approved a $55 million investment in the Bitwise Bitcoin Exchange Traded Fund. As of March 31, the value of this investment was $69.5 million. In May, the board approved a $30 million Bitcoin investment, with Figma allocating the funds to USD Coin, a stablecoin.

It is worth noting that Figma disclosed in its prospectus that it has been authorized to issue 'blockchain common stock' in the form of blockchain-based tokens. However, the company stated that it currently has no plans to issue such stocks.

Which other software stocks are worth watching?

Like Chima and Circle, which completed their IPOs this year, Figma's listing has garnered significant attention. This is partly due to its substantial market cap and partly because of its impressive list of shareholders.

Since its founding in 2012, Figma has completed eight rounds of public financing, with most of the top Silicon Valley venture capital firms participating in its funding. According to the documents, Index Ventures is the largest external shareholder with a 17% stake before the IPO; Greylock holds 16%, Kleiner Perkins holds 14%, and Sequoia Capital holds 8.7%.

Therefore, many investors hope that Figma's listing will, like Circle, boost the performance of its peers. Futubull has compiled a list of AI software stocks in the U.S. market for investors' reference:

Specifically, the current AI application stocks in the U.S. market include:

AI + Design: $Figma(FIG.US)$ 、 $Adobe(ADBE.US)$ ；

AI + Defense: $Palantir(PLTR.US)$ 、 $BigBear.ai Holdings(BBAI.US)$ ；

AI+Advertising: $Applovin(APP.US)$ 、 $Meta Platforms(META.US)$ 、 $Alphabet-A(GOOGL.US)$ 、 $Twilio(TWLO.US)$ 、 $The Trade Desk(TTD.US)$ 、 $Digital Turbine(APPS.US)$ 、 $Klaviyo(KVYO.US)$ ；

AI + Big Data: $Snowflake(SNOW.US)$、 $MongoDB(MDB.US)$ 、 $Confluent(CFLT.US)$ 、 $Oracle(ORCL.US)$ ；

AI + Security: $Palo Alto Networks(PANW.US)$ 、 $CrowdStrike(CRWD.US)$ 、 $Fortinet(FTNT.US)$ 、 $Datadog(DDOG.US)$ 、 $Cloudflare(NET.US)$ 、 $Rubrik(RBRK.US)$ ；

AI + Enterprise Services: $Zoom Communications(ZM.US)$ 、 $UiPath(PATH.US)$ 、 $Workday(WDAY.US)$ 、$Salesforce(CRM.US)$ 、 $monday.com(MNDY.US)$ 、 $SAP SE(SAP.US)$ 、 $C3.ai(AI.US)$ 、 $HubSpot(HUBS.US)$ 、 $Gitlab(GTLB.US)$ 、 $Atlassian(TEAM.US)$ 、 $Asana(ASAN.US)$ ；

AI + Fleet Management: $Samsara(IOT.US)$ ；

AI + Search: $Elastic(ESTC.US)$ ；

AI + Office: $Freshworks(FRSH.US)$ ；

AI + Education: $Duolingo(DUOL.US)$ ；

AI + E-commerce: $Shopify(SHOP.US)$ 、 $Amazon(AMZN.US)$ ；

AI + Finance: $Intuit(INTU.US)$ 、 $Intapp(INTA.US)$ ；

AI + Data Engineering: $Innodata(INOD.US)$ ；

AI + Voice: $SoundHound AI(SOUN.US)$ ；

AI + Medical:$Tempus AI(TEM.US)$ 、$Doximity(DOCS.US)$ ；

AI + Social: $Reddit(RDDT.US)$ 、 $Life360(LIF.US)$ ；

AI + Website: $GoDaddy(GDDY.US)$ ；

AI + Gaming: $Unity Software(U.US)$ 。

If Figma's performance after listing exceeds market expectations, it is anticipated that this could stimulate a further rise in AI application software stocks, as software is currently viewed as one of the most important areas for AI implementation.