Shares of Atlassian have slipped roughly 25% since the start of the year, a downturn that Morgan Stanley characterizes as an "attractive setup" ahead of the company’s upcoming fiscal second-quarter earnings release. Analyst Keith Weiss suggests that the market is overestimating the risks that artificial intelligence poses to Atlassian's core business model, which relies on seat-based licensing.
Morgan Stanley points out that this significant share price decline places Atlassian among the weakest performers within the large-cap software category in 2024, despite its "deeply discounted valuation." The investment bank argues that concerns regarding AI's effect on Atlassian are disproportionate, asserting that AI actually represents a growth catalyst. Weiss explains that increasing demand for AI-driven, complex applications requires enhanced collaboration tools and coordination, areas where Atlassian's software naturally benefits. This dynamic could enhance customer retention, encourage new user migrations, and accelerate upselling.
Additionally, Morgan Stanley underscores Atlassian's solid momentum within the enterprise segment, as well as broad adoption across a diversified user base supported by a comprehensive portfolio of solutions. The firm believes that these strengths are insufficiently acknowledged by the current market sentiment. It regards Atlassian’s revenue guidance as conservative, considering the steadier IT budget trends, ongoing product lifecycle development, and an improved go-to-market strategy. The bank projects fiscal second-quarter revenue growth exceeding 22% year-over-year, up from 21% in the preceding quarter, alongside an operating margin forecast near 26%.
Morgan Stanley further notes that Atlassian’s valuation has been negatively impacted twice: first due to its classification as an application software vendor and again because of perceptions about its developer-focused user base. The bank clarifies that about half of Atlassian’s users are non-technical, and that Jira Service Management contributes roughly 15% to 20% of the company’s revenue, underscoring a broader market penetration.
Taking into account conservative financial forecasts, improving demand dynamics, and what it views as an exaggerated risk outlook, Morgan Stanley concludes that the recent share price decline presents a compelling entry point. The stock may appeal to long-term investors seeking quality exposure in a sizable and expanding technology sector.