Atlassian (NASDAQ:TEAM): AI May Not Save the Stock

Shares of software project collaboration firm Atlassian (NASDAQ:TEAM) were one of the victims of the tech sell-off of 2022. Though the company can leverage generative artificial intelligence (AI) to help improve its platform, I’m not sure such innovations will save the stock as negative momentum picks up again.

At writing, the stock is down around 69% from its 2021 all-time highs. Despite the painful plunge, it remains difficult to gauge how much value there is to be had in the Australian tech firm that’s dominated the “software development software” niche for many years. Collaboration tools and productivity software are tough places to be in these days. Given the large number of uncertainties facing Atlassian’s niche market, I remain neutral on the stock.

Though I am impressed with management’s track record and the firm’s dominance among software development teams, I view AI as more of a disruptor than a source of an edge.

AI will probably take down many moats, and at this juncture, I’m not sure how effectively Atlassian can pivot as AI affects not only the collaboration software market but the software development profession itself.

Atlassian Embraces AI, but That May Not be Enough

The advent of AI could change the tides in a way that may not be favorable to Atlassian. Even with the recently-announced plans to bring in OpenAI’s ChatGPT technology to the Atlassian ecosystem, the market seems unconvinced about the company’s future trajectory.

Looking more into the future, the growing number of AI coders may stand to displace a large number of human software developers over the coming years. Many big-tech firms are betting big on AI coders.

Currently, GitHub Copilot looks to have an early lead in the space. Also, with Amazon (NASDAQ:AMZN) and Alphabet (NASDAQ:GOOGL) recently introducing Code Whisperer and Duet AI, it certainly seems like the race to automate programmers is on.

At this juncture, many co-programming AIs could place more emphasis on good cybersecurity practices. AI coders may be able to build you a piece of software in record time, but doing it securely is another task entirely.

Amazon Code Whisperer touts its impressive code security scanner that can help detect and fix potential vulnerabilities in code. With the Open Worldwide Application Security Project (OWASP) body of knowledge at its fingertips, we may witness AI coders doing things more securely the first time.

It may be too early to say what the longer-term implications are for human programmers. Regardless, I wouldn’t rule out anything at this juncture as new AI software, tools, and functionality continue to drop by the week. The disruptive impact of AI has the potential to be profound.

Who would have thought OpenAI’s ChatGPT would unleash the AI genie from the bottle?

Of course, an argument can be made that humans will always do better than machines in terms of coding, especially regarding cybersecurity protocols. Humans bring forth a level of creativity that an AI system may be unable to.

In any case, I still believe a bear-case scenario — one that sees AI eating into demand for software developers — should be considered. Fewer developers could translate to fewer licenses for collaboration software. And if the once far-fetched concept of a one-person software-development team comes to be as a result of AI, the roadmap for Atlassian becomes that much hazier.

Is Atlassian Stock a Buy, According to Analysts?

Turning to Wall Street, TEAM stock comes in as a Moderate Buy. Out of 18 analyst ratings, there are 10 Buys and eight Hold recommendations. The average Atlassian stock price target is $173, implying upside potential of 16.8%. Analyst price targets range from a low of $130 per share to a high of $215 per share.

The Bottom Line on TEAM Stock

Looking ahead, expectations are muted for the fiscal fourth quarter. The company plunged following the below-expected guidance calling for revenue to fall in the $900 million to $920 million range.

Indeed, recession headwinds may be mostly to blame for now, but it may be just a matter of time before AI’s disruptive impact works its way into the results. With OpenAI being integrated alongside Atlassian products, AI may act as more of a tailwind until it becomes more of a headwind.

At around 11.3 times trailing price-to-sales (P/S), shares are pretty much in line with the software industry average. The valuation may be more palatable but headwinds and profound uncertainty remain.


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