TEAM Q2 Deep Dive: AI Adoption and Enterprise Demand Offset Cautious Outlook

IT project management software company, Atlassian (NASDAQ:TEAM) reported Q2 CY2025 results beating Wall Street’s revenue expectations, with sales up 22.3% year on year to $1.38 billion. On the other hand, next quarter’s revenue guidance of $1.40 billion was less impressive, coming in 0.8% below analysts’ estimates. Its non-GAAP profit of $0.98 per share was 14.6% above analysts’ consensus estimates.

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StockStory’s Take

Atlassian’s second quarter saw revenue growth above Wall Street expectations, but the market’s reaction was subdued, reflecting some investor concerns. Management cited strong enterprise sales execution and increased adoption of its core cloud products—including Jira, Confluence, and Loom—as key drivers. CEO Mike Cannon-Brookes emphasized substantial momentum in large deal activity, with a record number of contracts over $1 million in annual contract value and evidence of growing usage among both technical and business users. The company also highlighted that its AI-powered features are seeing increased engagement, with business users now comprising half of core app usage, demonstrating the platform’s reach beyond traditional developer teams.

Looking to the next quarter, Atlassian’s guidance reflects a cautious stance, shaped by ongoing macroeconomic uncertainty and the evolving enterprise go-to-market strategy. Management underscored investments in artificial intelligence and cloud migration as central to future growth, but CFO Joe Binz noted, “Our guidance approach for next year remains conservative and risk-adjusted given persistent uncertainties.” The company expects continued expansion from the rollout of new AI capabilities, the Teamwork Collection, and increased migration from on-premises data center customers to the cloud. However, leadership acknowledged that the pace of these transitions may cause variability in near-term results as large customers move at their own speed.

Key Insights from Management’s Remarks

Management attributed the quarter’s performance to robust enterprise demand, rapid AI adoption, and accelerating cloud migrations, while also acknowledging leadership changes within the executive team.

• Enterprise sales momentum: Atlassian secured a record number of $1 million-plus deals, more than doubling year-over-year, reflecting increased adoption by large organizations consolidating their workflows on the Atlassian Cloud platform.
• AI feature engagement surges: The company reported a 50% increase in AI-powered feature usage from the previous quarter, with business users now representing half of core app activity. Management noted that AI features in products like Confluence led to users creating and editing more content, driving overall platform engagement.
• Cloud migration acceleration: Data Center to Cloud migrations rose 60% year-over-year, particularly among complex, large-scale enterprise customers. Management credited this trend to ongoing investments in customer success teams and R&D-driven improvements in automation and analytics.
• Teamwork Collection traction: The recently launched Teamwork Collection bundle quickly exceeded management’s expectations, winning significant contracts with major automotive and technology firms. Customers cited integrated AI and workflow features as key factors in their decision to standardize on Atlassian.
• Leadership transition announced: The company announced that President Anu Bharadwaj will step down at year-end after nearly 12 years, with management emphasizing the depth of the leadership bench and plans for a thoughtful transition process.

Drivers of Future Performance

Management expects future growth to be driven by AI investments, enterprise sales expansion, and continued cloud migrations, but acknowledges that macroeconomic uncertainty and customer migration timelines could influence performance.

• AI and Teamwork Collection expansion: Management believes new AI-powered features and the Teamwork Collection suite will drive increased customer adoption and upsell opportunities. CEO Mike Cannon-Brookes stated that product innovation is leading to higher usage and engagement, particularly among business teams beyond traditional software developers.
• Enterprise migration complexity: The company anticipates ongoing, though sometimes unpredictable, migration of large customers from on-premises data centers to the cloud. CFO Joe Binz noted that these transitions are complex and can lead to variability in migration-related revenue, but are ultimately expected to contribute mid- to high-single-digit growth for the cloud segment over the next several years.
• Investment in go-to-market and R&D: Atlassian plans to maintain a disciplined approach to operating expenses, focusing on sales, marketing, and engineering. The company is expanding its enterprise salesforce and continuing to invest heavily in AI and cloud infrastructure, aiming to balance margin targets with the need to capture long-term growth opportunities.

Catalysts in Upcoming Quarters

In future quarters, the StockStory team will focus on (1) the adoption rate and monetization progress of new AI-powered features across Atlassian’s product suite, (2) the pace and scale of large enterprise migrations from on-premises data centers to the cloud, and (3) execution of the Teamwork Collection’s go-to-market strategy. Additionally, we will monitor the impacts of ongoing leadership transitions and investments in sales capacity on revenue growth and margins.

Atlassian currently trades at $158.90, down from $170.57 just before the earnings. Is there an opportunity in the stock?See for yourself in our full research report (it’s free).

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