By Mariapaula Gonzalez

The AI revolution has shown no signs of slowing down, but two software companies may be trailing behind.

Capital One analyst Connor Murphy downgraded both GitLab and Atlassian to Equalweight from Overweight, noting slower customer acquisition and a shrink in the average revenue per user.

"We think one of the factors driving this disruption is the rise of alternative AI solutions and private code generation, which could lead to downward estimate revisions for next year and beyond," Murphy wrote in a Wednesday note. "This more negative sentiment could, in turn, lead to more limited multiple expansion opportunity for the companies."

Shares of GitLab dipped 0.8% at Wednesday's close, while Atlassian stock rose 1.5%. This year, both software stocks have dropped about 25% and 22%, respectively. The S&P 500 rose 0.3%.

GitLab and Atlassian didn't immediately respond to Barron's request for comment about the downgrades.

With the rise of alternative artificial intelligence tools, the need for as many human developers may decrease or developers may have to change how they use existing tools. Companies that integrate private code generation rather than relying on external vendors also could hamper the value proposition of Atlassian and GitLab.

Murphy lowered the stock-price target for GitLab to $46 from $54, noting the rise of AI-powered competitors and a loss in the company's unique features. While Murphy noted that GitLab will allow users to leverage external AI tools with their new Agent Platform set to launch at the end of this year, the analyst has a "murky" outlook on the strategy's execution and revenue impact.

For Atlassian, Murphy reduced the stock-price target to $211 from $241, citing weaker fourth-quarter guidance despite the company beating Wall Street's revenue expectations for the third quarter. While revenue topped consensus predictions by 0.5%, sales for their Data Center -- a special tool offering on-premise software for large organizations -- performed slightly worse than expected, missing expectations by 0.20% to 0.30%.

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July 16, 2025 16:39 ET (20:39 GMT)

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