Atlassian's (TEAM) improving net revenue retention and remaining performance obligations growth of 44% reflects improving artificial intelligence moderation efforts, but more disclosure is needed to help alleviate investor concerns on AI risks, Morgan Stanley said Friday.

The brokerage said more disclosures around data center annual recurring revenue growth, quantification on paid seat growth, a timeline for consumption revenue streams coming online, and more AI usage case studies would offer greater transparency around Atlassian's AI-positioning and market competition.

Q2 results indicated encouraging AI momentum as customers made larger commitments, cloud net-retention exceeded 120%, and a record number of contracts were valued over $1 million, the report said.

Despite these positive data points, Q2 results are unlikely to sway the narrative in the current environment of extremely negative sentiment on the stock and the broader software category, the investment firm said.

The investment firm revised its fiscal year 2026 modestly higher, aligning with the updated guidance, but lowered outyear estimates to reflect management's commentary regarding significant data center deceleration in FY2027.

However, data center deceleration is partly offset by higher cloud revenue growth and aligns with Atlassian's 3-year compound annual growth rate target of over 20% through FY2027, the firm said.

Morgan Stanley maintained an overweight rating on Atlassian and lowered the price target to $290 from $320.

Shares of the company were down 3.8% in recent Friday trading.

Price: 94.51, Change: -3.90, Percent Change: -3.96