Atlassian Corp - Class A

Atlassian announced 1,600 job reductions, with the stated intention of redeploying cost savings into AI investment. This move is expected to translate into higher operating margins, improved profitability, and stronger levels of free cash flow generation. The manager believes that Atlassian, along with other high-quality software businesses, is well positioned to benefit from the development and adoption of artificial intelligence, as these companies control proprietary customer data and sit at the center of critical workflows. The characteristics of deeply embedded systems of record and multi-party network effects make them resilient and valuable in the evolving landscape.

We progressively added Atlassian as we believe it is a beneficiary of the ongoing software evolution, particularly in the context of AI. The potential prize is too big, given how much prices and multiples have fallen for exciting, fast-growing businesses. We see 30-40%+ IRRs for many of our holdings, including Atlassian, as narratives change fast. The 'AI kills all software' thesis just doesn’t make sense, and we think that framework is being too broadly applied. We are looking for the right management teams willing to make the tradeoffs to overcome challenges, and the big selloff has actually been very helpful in focusing management teams’ attention and efforts.

Atlassian is a new position this quarter. It owns the tools that software teams use to plan and ship their work, which places it at an interesting spot in the AI story. The world is about to write a great deal more software, much of it with AI assistance, and all of that software still has to be organized, tracked, and shipped by human teams. We think the company that sits at the center of how software gets built is a fine place to own in a decade defined by building more of it.

We exited Atlassian despite resilient fundamentals because AI-driven uncertainty continues to overwhelm the stock’s valuation support. Current fundamental strength has been driven by cloud migrations and a growing enterprise sales motion, which has allowed Atlassian to broaden its subscription base from DevOps throughout the enterprise. That setup was undermined as Claude Code and related tooling sharpened investor focus on DevOps disruption risk. We still see Atlassian as a system of record, but the path to multiple stabilization has become increasingly unclear.

Atlassian was mentioned in the context of the software sector facing pressure due to AI disruption concerns. The letter notes that Atlassian, along with other software companies, was pressured by a growing narrative regarding potential disruptions to SaaS platforms. However, there is no explicit bullish or bearish argument made about Atlassian's future performance or valuation.

Atlassian Corp. underperformed during the quarter due to multiple contraction, despite strong near-term fundamentals. The company exceeded expectations in its FY4Q results and provided a conservative FY25 guide, supporting confidence in its ability to sustain +20% topline growth. However, the stock faced additional pressure when OpenAI released GPT-5, unveiling an internal SaaS tool for automating enterprise workloads, which triggered a broader negative reaction across the SaaS sector. Valuation derating reflects uncertainty over the role of application software in the era of generative AI, particularly in DevOps where AI-assisted coding shows clear returns.

Atlassian Corporation is a leading team collaboration and productivity software vendor. The company initially focused on serving software engineers (over 20 million worldwide), but its newer products, features, and use cases address a much larger set of users, including business teams engaged in project management and collaboration. This expansion positions Atlassian to capture significant market share as organizations increasingly adopt collaborative tools, particularly in the context of AI-driven productivity enhancements.

We were pleased to hold our own throughout this period while being underweight the Magnificent 7, but the first quarter of our 6th year certainly looked quite different. The current combination of market factors makes us more excited about investment opportunities than we have been in recent years. We have been actively adding capital to positions where we see compelling opportunity on a multi-year horizon, and we are finding those opportunities in both the resilient and optionality portions of the portfolio. We incrementally took advantage of market volatility in the quarter to best position the portfolio for the future. We found attractive opportunities amid the broad-based weakness in IT and, as a result, ended the quarter with an IT weight of about 43%, up from about 42% entering the year.

We were pleased to hold our own throughout this period while being underweight the Magnificent 7, but the first quarter of our 6th year certainly looked quite different. The current combination of market factors makes us more excited about investment opportunities than we have been in recent years. We have been actively adding capital to positions where we see compelling opportunity on a multi-year horizon, and we are finding those opportunities in both the resilient and optionality portions of the portfolio. We incrementally took advantage of market volatility in the quarter to best position the portfolio for the future. We found attractive opportunities amid the broad-based weakness in IT and, as a result, ended the quarter with an IT weight of about 43%, up from about 42% entering the year.

We were pleased to hold our own throughout this period while being underweight the Magnificent 7, but the first quarter of our 6th year certainly looked quite different. The current combination of market factors makes us more excited about investment opportunities than we have been in recent years. We have been actively adding capital to positions where we see compelling opportunity on a multi-year horizon, and we are finding those opportunities in both the resilient and optionality portions of the portfolio.