Atlassian maintains margins with 5M Rovo users as CEO defends AI strategy amid stock decline

Atlassian Proves It Can Manage AI Costs at Scale

Atlassian has demonstrated it can integrate AI into its services without sacrificing profit margins, a claim CEO Mike Cannon-Brookes emphasized during the company's second-quarter earnings call. The collaborationware company now serves five million users through its Atlassian Rovo agentic AI offering, yet has maintained stable gross margins despite the computational demands typically associated with AI deployment1

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. "We're able to deliver those five million Rovo seats and continue to improve gross margin," Cannon-Brookes told investors, crediting the company's engineering teams for this achievement1

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The ability to manage AI costs effectively stems from operational optimization rather than simply passing expenses to cloud providers. Since Atlassian runs entirely in public clouds, this approach suggests the SaaS giant has found ways to add AI capabilities without dramatically increasing spending with major cloud operators1

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. This matters because it demonstrates that AI integration doesn't inevitably lead to margin compression, a concern that has plagued many software companies racing to adopt the technology.

Heavy Investment in AI Research and Development Continues

Despite maintaining cost discipline in deployment, Atlassian's investment in AI research and development remains substantial. R&D spending for the quarter reached $826 million, approximately 22.5% above analyst estimates, as the company poured resources into AI capabilities and its Rovo product2

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. Mike Cannon-Brookes on AI spending was unequivocal: "In the current AI era that we're in, it's incredibly dangerous to be spending a small amount on R&D if you're trying to adapt," he told Bloomberg Television2

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This aggressive R&D posture reflects Atlassian's conviction that AI represents an opportunity rather than a threat to its business model. The company's willingness to invest heavily while simultaneously controlling operational AI costs suggests a strategic bet on building proprietary capabilities that will differentiate its platform over time.

CEO Defends AI Strategy Amid Market Skepticism

Cannon-Brookes used the earnings call and shareholder letter to push back against growing market concerns that AI could disrupt traditional SaaS businesses. "I'm convinced AI is great for Atlassian. Others think software is dead," he wrote in his shareholder letter, acknowledging that "noise swamps signal" in the current environment1

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. He argued that enterprise customers still value Atlassian's platform for its compliance, security, and trustworthiness—attributes that AI assistants alone cannot provide1

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The CEO also dismissed competitive threats from AI-native products like Anthropic's "Claude Cowork," which competes with Jira. Cannon-Brookes noted that such tools will still need to access data stored within Atlassian's systems, suggesting the company's position as a system of record provides inherent defensibility1

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. Customer conversations over the past year have been "incredibly positive," he said, with enterprises committing to longer-term contracts and adopting more of Atlassian's product stack2

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Strong Revenue Growth Overshadowed by Tech Shares Decline

Atlassian reported Q2 revenue of $1.6 billion, representing 23% year-over-year growth, and reached the $1 billion milestone for cloud product revenue in a single quarter for the first time1

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. Operating losses narrowed from $57.5 million in Q2 2025 to $47.7 million1

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. Cloud migrations remained healthy in the quarter as the company continues phasing out on-premises datacenter products1

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Yet tech shares have punished Atlassian severely. The stock has fallen more than 70% over twelve months and dropped an additional 8% in after-hours trading following the earnings announcement, bringing year-to-date declines to over 62%1

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. Cannon-Brookes expressed frustration with the valuation, calling the shares "significantly undervalued" and announcing accelerated stock buybacks1

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The disconnect between operational performance and market valuation reflects broader uncertainty about how AI will reshape the software industry. Investors appear concerned that heavy R&D spending and potential disruption from AI-native competitors could erode Atlassian's long-term position, even as the company demonstrates it can deploy AI at scale without destroying margins. Whether Atlassian's bet on platform durability and AI integration proves correct will depend on how quickly enterprises adopt AI-first workflows and whether Rovo can deliver enough value to justify continued investment.