Atlassian’s Cloud Milestone Fails to Impress a Skeptical Market

Despite posting its strongest-ever cloud revenue performance, Atlassian shares faced significant selling pressure last week. The collaboration software company's stock has declined approximately 40% since the start of the year, raising questions about whether its growth narrative is under threat even as it hits operational benchmarks.

• Recent Share Price: $94.72 (Friday's closing price).
• Year-to-Date Performance: Down roughly 40%.
• Quarterly Revenue: $1.59 billion, representing a 23% year-over-year increase.
• Cloud Business: Quarterly revenue surpassed $1 billion for the first time.
• Analyst Action: Morgan Stanley maintains an Overweight rating but reduced its price target to $290 from $320.

The market's negative reaction followed Atlassian's release of its Q2 2026 financial results last Thursday. While the company's total revenue of $1.59 billion exceeded analyst forecasts, with cloud revenue growing 26% to cross the $1 billion quarterly threshold, shares fell 6.3% the next trading day.

Investors appeared less focused on the historic cloud achievement and more concerned with management's outlook for fiscal 2027. Executives warned of an anticipated growth slowdown in the Data Center segment, attributing it to an accelerating customer migration to the cloud. This cautious commentary eclipsed even the positive news of a 44% surge in remaining performance obligations (RPO), a key indicator of future revenue.

Market Analysts and External Commentary

Financial institutions were quick to adjust their models. Morgan Stanley strategist Keith Weiss reiterated his Overweight stance on the equity but trimmed his price target, citing compression in valuation multiples despite a belief in the firm's long-term thesis.

Should investors sell immediately? Or is it worth buying Atlassian?

Unexpected support for the sector came from Nvidia CEO Jensen Huang. He characterized the recent sell-off in software stocks—driven by fears that AI could replace programming tools—as "illogical." Huang argued that artificial intelligence is more likely to accelerate software platforms than render them obsolete. For bullish investors, this provides a core argument that the selling pressure on Atlassian lacks a fundamental basis.

Insider Transactions and Legal Scrutiny Add Pressure

Further headwinds emerged from reports of stock sales by co-CEOs Michael Cannon-Brookes and Scott Farquhar. Although these transactions were conducted under pre-arranged trading plans, they contributed to investor unease during a period of share price weakness.

Separately, the law firm Pomerantz LLP announced an investigation into potential securities law violations. Such legal probes are not uncommon in the U.S. following significant stock declines, but they often weigh on a company's near-term reputation.

While operational milestones like the cloud revenue record underscore Atlassian's ongoing business transformation, current investor anxiety is centered on the pace of the Data Center wind-down. Forthcoming quarterly reports will need to demonstrate that robust cloud growth can consistently offset the expected declines in the traditional infrastructure business.