Atlassian

TEAM

Market cap $39.3B

The software sector has been a meaningful laggard this year, and Baird analysts say plenty of stocks are now on sale.

Positioning within the Magnificent 7 was the primary driver of poor security selection and relative underperformance. The Fund's holdings in businesses viewed as key enablers of AI were strong contributors to absolute returns. Consumer internet names benefited from idiosyncratic growth drivers in ecommerce, advertising, and gaming.

FIG's AI-driven design tools and growing customer adoption shine, but TEAM's stronger enterprise traction and rising AI usage make it the more compelling pick.

GTLB and TEAM reveal contrasting strengths as AI reshapes DevSecOps, highlighting how each platform tackles security, workflow and automation.

The portfolio generated a modestly positive absolute return in Q3, but it trailed the MSCI All Country World Small Mid Index. The Q3 underperformance was driven by stock selection in the IT, financials and consumer discretionary sectors. On the positive side, stock selection in the health care and industrials sectors was the strongest contributor to performance.

Atlassian's strong product ecosystem and recurring revenue model support long-term growth and customer retention. The company's ongoing investments in cloud migration and innovation drive competitive advantage and expansion opportunities. Valuation remains elevated, but TEAM's robust fundamentals and market leadership justify a positive long-term outlook.

Atlassian Corporation reported strong Q1 FY26 results, beating revenue and earnings estimates, driven by robust Cloud momentum and AI-enabled System of Work innovation. TEAM raised FY26 revenue and margin guidance, fueled by accelerated Data Center to Cloud migrations as they EOL their Data Center products along with launching new AI-enabled Collections. Despite a 35% YTD decline and sector-wide sentiment challenges, cRPO accelerated and upward revisions to revenue and earnings estimates signal bullish forward momentum for Atlassian.

Atlassian shares have fallen ~30% YTD, but current AI fears are overblown, and fundamentals remain strong. TEAM raised guidance, posted 21% revenue growth, and continues to see robust cloud adoption and AI-driven expansion. Valuation is attractive: TEAM trades at a discount to peers despite strong margins, free cash flow, and a large addressable market.

We remain confident in AI's potential to transform the global economy and in NVIDIA's pivotal role as the leading enabler of that transformation. We retain our long-term conviction in Broadcom's position within the AI ecosystem. Shares of PAR fell during the quarter as the company lowered its annual recurring revenue growth outlook for the year to 15% (from prior 20% expectations) due to weak macro conditions for its restaurant customers.

Alibaba was a contributor to the portfolio during the quarter, driven by strong execution in its core commerce and cloud businesses, and improved investor sentiment around management's strategic direction. TSMC's management raised fiscal year 2025 guidance to 30% revenue growth year-over-year, supported by robust demand for advanced semiconductor manufacturing and strong execution across its diversified business mix. Alcon was a detractor from performance during the quarter, as the company reported weaker than expected results and lowered its 2025 revenue guidance following sluggish market conditions and competitive pressures.