Most software stocks have plummeted during the past 12 months, as investors worry artificial intelligence (AI) will deal a blow to the software-as-a-service (SaaS) business model. The concerns are twofold:

1. If AI reduces the global workforce, SaaS companies that charge their customers on a per-user basis will suffer a sharp reduction in their revenue.
2. AI programming tools like OpenAI's Codex and Anthropic's Claude Code technically make it easy to build replica software tools, which could render legacy SaaS providers obsolete.

But during the past two quarters, Atlassian (NASDAQ: TEAM) has blown those concerns out of the water, and its stock has rocketed higher by 166% from its April 52-week low of $56. In fact, the story is now so positive that Chief Executive Officer Mike Cannon-Brookes just said the company plans to buy $250 million worth of Atlassian shares on the open market. Here's why investors might want to follow that lead.

AI is proving to be a huge tailwind for Atlassian

Atlassian's flagship products include Jira, which helps technical and non-technical teams manage their projects, and Confluence, which can serve as a digital town square for any organization, where employees can share important information and discuss work. In 2024, the company launched an AI platform called Rovo, which enhances Jira and Confluence with a host of powerful new features.

Rovo is incredibly versatile. It can serve as a coding assistant to rapidly help software developers resolve tickets in Jira, and it also powers a holistic search function that can rapidly locate information from across the entire organization, even if it's stored outside of an Atlassian product. Tech giant Cisco says it built AI agents with Rovo to automate reporting workflows, which has made some processes a whopping 40 times faster.

AI works best when it has context, because it can draw conclusions faster while keeping token costs at a minimum. Organizations run so much internal data and so many workflows through Atlassian's ecosystem that it's the ideal place to extract the most value from AI. In fact, the company says AI agents grounded in the Atlassian ecosystem produce 44% more accurate answers while consuming 48% fewer tokens, or units of data.

Atlassian has a treasure trove of data from more than 350,000 enterprise customers, so it knows exactly how they work and what problems they need to solve. This gives Rovo a huge head start over generic AI assistants, which lack that important contextual information -- and it's showing up in Atlassian's financial results, because the annual recurring revenue (ARR) it earns from Rovo adopters is growing twice as fast as the ARR from non-Rovo customers.

Soaring revenue and profits

Atlassian generated $1.77 billion in revenue during the fourth quarter, which blew away Wall Street's average forecast of $1.66 billion. It also represented year-over-year growth of 28%, quelling concern that AI would be a drag on the company's sales -- in fact, it appears the exact opposite is true.

Atlassian's revenue could increase even faster, but it's prioritizing its bottom line by carefully managing costs. Its total operating expenses increased by just 11.8% during the fourth quarter, and since revenue grew significantly faster, this resulted in a generally accepted accounting principles (GAAP) profit of $139.1 million. That was a big swing from the $23.9 million net loss in the same quarter last year.

On an adjusted (non-GAAP) basis, which excludes one-off and noncash expenses like stock-based compensation, Atlassian generated a profit of $473.1 million in the fourth quarter, up by a whopping 83% from the year-ago period. It took the company's overall fiscal 2026 adjusted profit to $1.53 billion, up 56%.

The fact that Atlassian is growing quickly and profitably suggests investors were probably mistaken to assume the company would immediately succumb to the AI revolution.

Despite its recent gains, Atlassian stock is still attractively valued

Although Atlassian stock is up 166% from its April low point (as of Aug. 10), it's still trading at a very attractive price-to-sales (P/S) ratio of 5.9, which is a steep discount to its three-year average of 10.2.

That suggests Atlassian stock would have to climb by more than 70% to match its average P/S ratio, which certainly is possible if the company continues to execute at a high level.

I want to end with this thought: Replicating software tools like Jira and Confluence might be easy with AI-assisted programming products like Claude Code, but that is only a small part of the challenge. It takes infrastructure, security, and constant technical support to deploy enterprise software successfully, which can be extremely expensive. The economics typically only work at scale, which is why I predict it will be more affordable for businesses to continue paying Atlassian for the complete package instead.

Then there is reputational risk. When businesses build their own software, they also have to accept full responsibility if they suffer a cyber breach that results in stolen data. This can be devastating to the trust they have built with their customers, which is another reason using third-party vendors like Atlassian makes a lot more sense.

Simply put, I expect Atlassian to thrive for the foreseeable future.

Anthony Di Pizio has positions in Atlassian. The Motley Fool has positions in and recommends Atlassian and Cisco Systems. The Motley Fool has a disclosure policy.

Disclaimer:This article represents the opinion of the author only. It does not represent the opinion of Webull, nor should it be viewed as an indication that Webull either agrees with or confirms the truthfulness or accuracy of the information. It should not be considered as investment advice from Webull or anyone else, nor should it be used as the basis of any investment decision.