Investing.com -- The steep selloff in one software stock has created an “attractive setup” ahead of its fiscal second-quarter results, according to Morgan Stanley, which argues that investors are overstating the risks posed by artificial intelligence.
Analyst Keith Weiss noted that shares of Atlassian are down around 25% year-to-date and now trade at a “deeply discounted valuation,” making the stock one of the worst performers in large-cap software so far this year.
Morgan Stanley believes concerns about AI’s impact on Atlassian’s seat-based model are exaggerated.
“AI is a tailwind for TEAM,” the Weiss wrote, citing “more developers, more complex AI app work needing coordination and AI-infused products” that should “boost stickiness, migrations, and upsell.”
The firm also highlights Atlassian’s “strong enterprise momentum, traction with broad solution portfolio, and diversified user base,” which it says remain underappreciated.
The bank argues that topline guidance looks conservative given “steadier IT budgets, ramping product cycles and stronger GTM execution.” It expects Atlassian to deliver “22%+ YoY total revenue growth” in F2Q, accelerating from 21% in the prior quarter, along with a 26% operating margin.
Morgan Stanley also notes that Atlassian has been “penalized twice,” once for being an application software vendor and again for its perceived developer-heavy base, even though “~50% of its users are non-technical” and JSM accounts for “15%-20% of the business.”
With conservative estimates, improving demand and what it calls overstated fears, Morgan Stanley concludes the pullback presents an “attractive opportunity for long-term investors looking to own a quality asset in a large and growing category.”
