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Figma’s stock experienced a sharp two-day decline totaling 12% as Google launched its AI-powered design platform, heightening investor concerns over competition in the rapidly evolving generative AI space. The stock is now down roughly 35% year-to-date, reflecting both sector-wide pressure on cloud software companies and growing uncertainty about AI’s impact on design workflows.

The new Google beta product, called Stitch, allows users to input a text prompt and instantly generate project designs. The tool functions as a “design agent,” providing real-time critiques and even responding to voice commands. Google has not set a price or confirmed long-term availability for Stitch, but the market reaction underscores investors’ sensitivity to potential AI threats.

Figma shares dropped 8% on Wednesday, followed by another 4% decline on Thursday. The downward pressure adds to an already challenging year for the company, which went public in July and had previously assured investors it was well-positioned to leverage AI for design applications. Adobe, which attempted to acquire Figma in 2023 for $20 billion, terminated the deal due to regulatory hurdles. Over the same two days, Adobe shares fell approximately 3%.

The Google launch could signal an effort to integrate design services into its broader enterprise ecosystem, leveraging its massive distribution, financial resources, and product bundling capabilities. Should Stitch roll out to paying customers, it could capture a significant share of the AI design market, challenging Figma’s growth trajectory.

Figma had previously expanded its partnership with Google Cloud, integrating more of Google’s generative AI into its platform through tools like Figma Make, which utilizes models from Anthropic and Google to assist users in creating or modifying app designs. Despite these collaborations, investors remain cautious about Figma’s ability to maintain a competitive edge amid intensifying AI-driven alternatives.

A Figma spokesperson declined to comment on the recent stock movements, and Google did not immediately respond to requests for comment. Analysts note that the next few quarters will be critical for Figma as the company navigates AI adoption, competitive pressure, and broader market volatility in the software sector.