This Software Stock Is Up 74% in 1 Month, and It Can Keep Climbing Higher From Here
Key Points
Software stocks have been beaten down by AI fears, but the tides are starting to turn.
A transition period could weigh on revenue growth but ultimately provide better earnings growth.
- 10 stocks we like better than Atlassian ›
Software stocks crashed at the start of 2026 amid growing fears that artificial intelligence would disrupt the growth of many enterprise software providers. But as many software companies seek to set themselves apart from the pack by demonstrating that AI benefits their businesses, the group has begun to recover.
Atlassian (NASDAQ: TEAM), for example, is up 74% over the past month, as of this writing. Even after that phenomenal growth, the stock has yet to recover its share price from the start of the year. What's more, it remains about 50% below its all-time high from the start of 2025.
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But Atlassian looks poised to use its broad software suite and AI to drive higher financial results, and its stock price should follow suit. It can still climb much higher from here.
Image source: Getty Images.
What's driving the stock higher, and can it keep it up?
Shares of Atlassian have benefited from a broader rotation from chipmakers to software stocks, but its rise was fueled by much better-than-expected fourth-quarter earnings. The company grew revenue 28% year over year, driven by strong results from its cloud segment, which accelerated to 31% year-over-year revenue growth.
That's important because the company is migrating customers from on-premises data center deployments to its cloud platform by 2029. Management pulled forward a lot of data center revenue into the third quarter and expects a significant drop-off in sales over the next year. Management's full-year outlook calls for a 17% decline in data center revenue, resulting in an overall 13% deceleration in 2027.
But Atlassian could outperform that guidance. It's worth noting that management expects its cloud revenue growth to come in at just 25.5% for the full year. That would suggest a considerable slowdown in the back half of the fiscal year.
That's despite management indicating very strong trends with its cloud customers, especially those using its AI platform, Rovo. Management said Rovo adopters are growing their annualized recurring revenue at twice the rate of non-adopters. Expanding Rovo's usage and driving adoption should help push more cloud revenue growth from its existing user base.
Management also continues to see solid performance in retention and expanding usage across teams within an organization. Net revenue retention exceeded 120%. What's more, the growth runway looks strong, with remaining performance obligations climbing 44% to $4.8 billion.
Even after the strong recovery, the stock trades for about 28.6 times forward earnings estimates. That's even though it could produce substantial earnings growth on top of its strong revenue growth over the coming years, thanks to the operating leverage of running a software business. Completing the migration to the cloud platform and sunsetting the on-premises software will also benefit operating margins by streamlining operations.
Overall, the stock still looks cheap and could keep climbing from here.
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Adam Levy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Atlassian. The Motley Fool has a disclosure policy.
