Why Morgan Stanley still believes in Atlassian after the sell-off

Atlassian (TEAM) recently saw its stock drop by almost 18% in five trading sessions. And the company’s shares closed at $156.60 on Friday, Nov. 6. Meanwhile, the stock had traded above $204 as recently as Oct. 29.

The drop came right after Atlassian released its first-quarter fiscal 2027 earnings on Nov. 5. The results were solid, but the company’s forward guidance worried investors. That was why the stock fell.

Vanguard says inflation is closer to 2% than Tuesday’s CPI suggests

Snapchat users are paying up, and Wall Street is missing it

The stock had been climbing since the summer, and any disappointment in the results was expected to send shares lower.

However, even with the drop, Morgan Stanley took a different view from others. In a Morgan Stanley report shared with me, titled “1Q27 Results – Expectations Reset, Fundamentals Intact,” the firm kept its Overweight rating and $180 price target on the stock.

To Morgan Stanley, the sell-off is simply a reset in expectations after months of strong gains.

What actually triggered the Atlassian sell-off

Atlassian makes software that teams in workplaces use every day. It has two main products, Jira and Confluence. Jira helps teams track their projects and tasks. Confluence is where teams store shared documents and notes.

Atlassian also has newer tools like Rovo that bring AI features into Jira and Confluence. Companies pay Atlassian to use its software on a per-user basis, so the company’s growth depends on working with more businesses and signing up more customers.

Also read: 5 tech stock stalwarts have tumbled over 50%

In Atlassian’s first-quarter results for fiscal 2027, the company’s cloud revenue grew 30.5% year over year to $1.302 billion. According to Barron’s, that beat Wall Street’s expectations by 1.5%.

While overall performance remained healthy, the cloud segment’s revenue beat represented its narrowest outperformance relative to consensus estimates since Q3 2025, tempering expectations among investors accustomed to wider margins.

Then the company announced its future guidance that didn’t make the reaction any better. Atlassian said growth in its cloud business would slow to about 27% in the current quarter. That cautious second-quarter outlook is what really spooked the market.

Atlassian stock dropped sharply after the company’s Nov. 5 earnings release.

SOPA Images / Getty Images

Why Morgan Stanley is still bullish on the Atlassian stock

Morgan Stanley’s software team, including analyst Adam Wood, called the sell-off “an expectations reset.”

The team believes the business is still in solid shape. And they pointed to healthy cloud growth, strong subscription revenue, and expanding customer commitments as reasons for the outlook.

The company’s numbers back up Morgan Stanley’s view. Atlassian’s free cash flow came in at $463 million, which was 32% above what Wall Street expected.

More Software Stocks:

CrowdStrike gives companies a ‘kill switch’ as bots go off script
Micron freezes Taiwan plant as workers demand bigger cut
Arm leans on cloud giants as a memory shortage hits phones

The company’s remaining performance obligations, which show how much future revenue the company already has under contract but hasn’t delivered yet, also grew 44% to $4.7 billion. In addition, the number of customers paying Atlassian more than $1 million a year grew by over 30%.

With the recent drop and such strong numbers, it looks like a good opportunity to buy the stock. And since TEAM shares are trading at around 20x free cash flow for 2027 and the company’s growth is staying above 20%, the Morgan Stanley team wrote that they “would be buyers of the weakness.”

In addition to the cheaper valuation, Atlassian is also gaining more from each customer. Teamwork Collection, one of Atlassian’s product bundles, grew sevenfold year over year to more than 3,000 customers. That shows that existing clients are buying into more of the company’s tools.

The guidance number that keeps worrying investors

Atlassian’s cautious guidance outlook is the main cause for worry. The projected 27% second-quarter growth points to a slowdown of about 350 basis points from the previous quarter.

Morgan Stanley flagged this as the weak spot and said it fell short of what investors had hoped for.

Even so, the team still thinks Atlassian’s management is just being careful. The analysts pointed out commentary from the earnings call citing “tougher comparisons and normal early-year prudence.”

CEO Mike Cannon-Brookes sounded positive about customer demand on the call, and Atlassian has often been conservative at the start of its fiscal year.

However, the company still has a risk. If its growth keeps slowing down in the coming quarters, the stock could fall further.

What this sell-off means for investors

This drop is a good reminder of how much a stock can swing based on a company’s guidance alone. The company reported strong first-quarter numbers, yet just one cautious note wiped out months of gains in just a few days.

In my view, anyone thinking of buying Atlassian now should consider buying a small amount first before adding more gradually. That will give you time to watch whether cloud growth settles in the next couple of quarters before committing more.