Artificial intelligence (AI) stocks to buy first, according to Wall Street

Atlassian (NASDAQ: TEAM) develops workplace collaboration software that helps organizations manage workflow and increase productivity. The company has implemented a number of artificial intelligence (AI) tools to improve its core products, and these tools are rapidly adopting.

Atlassian just announced financial results for the third quarter of fiscal 2024 (ended March 31) and delivered accelerated revenue growth on both a sequential and year-over-year basis. This is even more impressive because the company managed its costs carefully and even saw a small profit for the third quarter.

Wall Street Journal followed by 30 analysts covering Atlassian shares. Most of them are optimistic and none of the analysts recommends selling. Here’s why investors may want to follow suit.

Atlassian is entering the era of artificial intelligence

Jira and Confluence are Atlassian’s flagship products. Jira was originally designed to help developers manage, debug, and ship software projects, but it is increasingly being used by non-technical teams to collaborate on all kinds of work. Confluence is a more generalized platform that provides entire organizations with a virtual workspace to share content and discuss ideas.

Atlassian Intelligence is a suite of AI tools designed to improve Jira and Confluence. It includes an AI-powered search feature that allows users to quickly find issues in a sea of ​​open issues in Jira. It’s a tooltip-based tool that recognizes natural language, so it’s especially useful for non-technical workers.

It can also be used to create virtual agents in Jira Service Management that can handle many incoming customer requests that would otherwise require human attention. One company, FanDuel, claims to have reduced the number of support calls requiring human intervention by 85% since implementing virtual agents.

Atlassian Intelligence also increases productivity in Confluence. It can not only quickly summarize a long piece of content, but also analyze it and create an action plan so that employees know what to do next. Similar to Jira, Confluence uses AI-powered search to reduce the time employees spend browsing the platform.

Atlassian Intelligence was officially released in December and is already used by 30,000 of Atlassian’s 300,000 customers. So far, 77% say tools like AI-powered search save them time every week.

Revenue growth accelerated in the third quarter

Atlassian reported a breakthrough quarter in the third quarter. The company’s total revenue increased 30% year-over-year to a record $1.19 billion, and the pace of growth represented acceleration both sequentially and compared to last year’s third quarter.

The result included cloud revenue of $703 million, up 31% compared to the year-ago period, representing the fastest growth rate in a year. Data center revenues were $364 million, up 64% and also representing acceleration. The latter result was supported by customers purchasing additional capacity before planned price increases, so the dynamics may drop from this high level in the next quarter.

Customers can deploy Atlassian software in the cloud (using Atlassian servers), which is a great, low-cost option for small and medium-sized businesses. Many large organizations prefer to use their own servers or third-party data centers operated by e.g Amazon Network Services i Microsoft Blue.

Atlassian operated on a growth-at-all-costs strategy, which meant it was willing to spend large amounts of money on marketing and research and development, even if this resulted in net losses. However, the company managed costs more carefully last year due to high interest rates and uncertain economic conditions.

In the third quarter, Atlassian’s operating costs increased only 5.4% compared to the year-ago period. Most of the growth was attributed to research and development, which makes sense given the continued adoption of artificial intelligence. Modest expense growth combined with accelerated revenue growth for Atlassian resulted in net income of $12.7 million.

While this is a small number compared to the company’s revenue, it was a huge positive change compared to the $209 million net loss generated in the previous year. This proves that Atlassian can deliver rapid growth without having to burn a lot of money.

Wall Street is bullish on Atlassian stock

Atlassian shares are trading 63% below their all-time high, which was set during the 2021 tech frenzy when investors gave it a relatively ambitious valuation. The decline was exacerbated by a slowdown in the company’s revenue growth throughout fiscal 2023, but with this trend reversing in the third quarter of 2024, the large share price discount could now represent a long-term buying opportunity.

Atlassian is on track to generate more than $4 billion in total revenue in fiscal 2024 (ended June 30), but the company believes it could more than double that number to $10 billion over the next five years. Even if it succeeds, it will be just a fraction of the $67 billion market that continues to grow, and AI could significantly increase that number over time, creating new ways to make businesses more productive.

Wall Street Journal are followed by 30 analysts covering Atlassian stock, 13 of whom have rated it with the highest possible buy rating, while another five are in the overweight (bullish) camp. The remaining 12 recommend holding, and none of the analysts recommend selling. In light of the points above, it’s no surprise that the Street has a bullish consensus on Atlassian stock.

Is it worth investing $1,000 in Atlassian now?

Before you buy Atlassian stock, consider the following:

The Motley Fool Stock Advisor a team of analysts have just identified what they think it is 10 best stocks for investors to buy now… and Atlassian wasn’t one of them. 10 stocks that made a cut could deliver monster returns in the coming years.

Consider when Nvidia created this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you would have $697,878!*

Stock advisor provides investors with an easy-to-follow blueprint for success, including portfolio-building tips, regular updates from analysts, and a selection of two new stocks each month. TheStock advisorthe service has more than four times return of the S&P 500 since 2002*.

See 10 stocks »

*Stock Advisor returns from May 28, 2024

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Anthony Di Pizio has no position in any of the companies mentioned. The Motley Fool covers and recommends Amazon, Atlassian and Microsoft. The Motley Fool recommends the following options: long $395 Microsoft calls in January 2026 and short $405 Microsoft calls in January 2026. The Motley Fool has a disclosure policy.