Figma (FIG) benefited from accelerating adoption of its AI-powered products in Q1, supporting seat expansion, paid customer conversion, and early credit monetization, Morgan Stanley said Friday in a report.

Revenue rose 46% from a year earlier, beating the market consensus even amid a "very dynamic competitive environment and a mixed macro backdrop," the report said.

Rising AI usage weighed on gross margins, which fell to around 82%, below Wall Street expectations of about 84%, the report said. Operating margins of 15.6% came in well ahead of consensus at 9%, and contracted by only 200 basis points, Morgan Stanley said.

Investors remain focused on issues including intensifying competition in design tools and uncertainty around the trajectory of Figma's gross margins, the report said. Still, Q1 results offered a "strong case" for the company's positioning in AI, Morgan Stanley said.

"Debates on the competitive dynamic and near-term margin pressures may limit upside in the shares without further data points from the company," the report said.

Morgan Stanley cut Figma's price target to $38 from $44 and maintained its equal-weight rating.

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