Figma’s blockbuster IPO performance has fueled the momentum of the tech sector, with investors showing a continued appetite for risk despite mounting headwinds such as a slowing economy and stretched valuations.
The design software maker’s shares surged 250% in their debut, more than tripling the IPO price, and held onto their gains on Friday. This outperformance comes against the backdrop of a major rebound in technology stocks, which stumbled at the start of the year.
Analysts attribute Figma’s strong performance to investors’ “risk-on” mindset, even as they grapple with concerns about the economy and tech valuations. Eric Compton, Morningstar’s director of equity research for technology, notes that there is still good demand for unique platform assets with growth potential.
The momentum in tech stocks has been fueled by a series of blockbuster earnings from mega-cap firms like Microsoft and Meta Platforms. Mark Hackett, chief market strategist at Nationwide, says investors have become accustomed to buying tech when things are good or bad, driven by their “Pavlovian instinct” towards the sector.
Active investors, including hedge funds and retail traders, are also driving stocks higher, with some analysts attributing this to the “meme stock” discussion surrounding names like Kohl’s. Steve Sosnick, chief strategist at Interactive Brokers, notes that active traders are willing to take on more risk, as seen in Figma’s IPO performance.
Despite concerns about tech’s fundamentals and elevated valuations, analysts remain optimistic about the sector’s prospects. Morningstar’s Compton points to the recent recovery of CoreWeave, another high-profile tech IPO, as evidence of investors’ renewed interest in preprofit companies with strong product-market fit.
Source: https://www.morningstar.com/markets/figmas-ipo-soars-investors-still-love-big-tech