Industry Overview - The Internet Software and Services sector is experiencing growth due to increased IT spending on hybrid operating environments and mobile device penetration, prompting businesses to invest in web-based infrastructure and security software [1] - The Internet Software industry is ranked in the top 28% of Zacks Industry Rank, indicating expected outperformance in the market over the next three to six months [2] Company Highlights Palantir Technologies Inc. (PLTR) - Palantir's AI strategy integrates its Foundry and Gotham platforms, focusing on AI adoption in government and commercial sectors, with an expected revenue growth rate of 41.1% and earnings growth rate of 43% for next year [6][10] - The company is involved in significant government projects, such as the Department of Defense's Open DAGIR initiative, enhancing military operations through AI [7] - Palantir's AIP boot camps have attracted over 1,000 companies, showcasing its platform's capabilities across various industries [8] Snowflake Inc. (SNOW) - Snowflake is set to benefit from rising demand for cloud-based data platforms, with an expected revenue growth rate of 22.3% and earnings growth rate of 33.9% for next year [11][15] - The cloud analytics market is projected to grow from $35.39 billion in 2024 to $130.63 billion by 2030, with a CAGR of 25.5%, supporting Snowflake's growth trajectory [12] - Snowflake's AI Data Cloud is gaining traction across multiple industries, enhancing enterprise capabilities in data management and analytics [14] Datadog Inc. (DDOG) - Datadog is experiencing growth from new customer acquisitions and increased adoption of its cloud-based monitoring platform, with an expected revenue growth rate of 19% and earnings growth rate of 15.4% for next year [16][20] - The company unveiled over 125 new products at DASH 2025, including AI observability tools, enhancing its competitive position [17][18] - Datadog's solutions are increasingly used to monitor AI-powered applications, driving broader product usage [19] Atlassian Corp. (TEAM) - Atlassian is benefiting from the demand for remote working tools, with a 25X year-over-year increase in AI interactions among over 1 million monthly active users [22] - The company's AI-powered Rovo platform and automation tools are driving growth in premium and enterprise editions [23] - Atlassian's collaboration with OpenAI to enhance its software with generative AI features is expected to boost revenue [24] Zoom Communications Inc. (ZM) - Zoom is capitalizing on the hybrid work trend, with its AI Companion achieving a fourfold increase in monthly active users year-over-year [26][27] - The platform's integration with third-party applications and custom AI functionalities is enhancing operational efficiencies for customers [28] - Zoom has an expected revenue growth rate of 3% and earnings growth rate of 0.1% for next year [29]

Baron Funds, an investment management company, released its “Baron Technology Fund” third-quarter 2025 investor letter. A copy of the letter can be downloaded here. US equities rallied in the third quarter following the previous quarter. In the third quarter, the fund returned 5.89% (Institutional Shares) but underperformed the MSCI ACWI Information Technology Index's (the Benchmark) 12.76% return, Invesco QQQ Trust's (the QQQ) 8.94% return, and the S&P 500 index's 8.12% return. In addition, please check t ...

Core Viewpoint - Investor sentiment is currently bullish due to solid third-quarter earnings, despite concerns over a government shutdown and economic data blackout [2][5] Group 1: Stock Recommendations - Recommended stocks include Roku, Inc., Universal Health Services, Inc., and Atlassian Corp., which have received upgraded broker ratings [3][6] - Roku, Inc. is the leading TV streaming platform in the U.S., Canada, and Mexico, with a projected earnings increase of 134.8% year-over-year for 2025 and a 6.7% upward revision in broker ratings [6] - Universal Health Services operates over 355 inpatient acute care hospitals and is expected to see a 27.6% increase in earnings for 2025, with a 5% upward revision in broker ratings [7][8] Group 2: Broker Insights - Brokers provide valuable insights through direct engagement with company management, public disclosures, and earnings calls, allowing for a comprehensive assessment of a company's fundamentals [4] - While broker upgrades can signal potential stock performance, they should not be the sole basis for investment decisions, as sustainable returns require a broader analysis [5]

Group 1 - Atlassian (TEAM) has shown a significant price increase of 17.2% over the past four weeks, with a mean price target of $235.32 indicating a potential upside of 33.6% from the current price of $176.08 [1] - The mean estimate consists of 25 short-term price targets with a standard deviation of $35.93, suggesting variability in analyst predictions; the lowest estimate is $178.00 (1.1% increase), while the highest is $320.00 (81.7% increase) [2] - Analysts have recently revised earnings estimates upward, indicating a positive trend that correlates with potential stock price increases, as the Zacks Consensus Estimate for the current year has risen by 191.4% [4][12] Group 2 - The Zacks Rank for TEAM is 2 (Buy), placing it in the top 20% of over 4,000 ranked stocks based on earnings estimates, which supports the stock's potential upside [13] - While price targets are often viewed as important metrics, they should be approached with skepticism due to historical inaccuracies in predicting actual stock movements [7][10] - A low standard deviation among price targets indicates a strong consensus among analysts regarding the stock's price direction, which can serve as a starting point for further research [9]

Core Insights - The Zacks Premium service provides tools for investors to enhance their stock market engagement and confidence [1] - The Zacks Style Scores are designed to help investors select stocks with the highest potential to outperform the market in the short term [3] Zacks Style Scores Overview - The Zacks Style Scores consist of four categories: Value Score, Growth Score, Momentum Score, and VGM Score, each focusing on different investment strategies [4][5][6][7] - Value Score identifies undervalued stocks using financial ratios [4] - Growth Score assesses a company's financial health and future growth potential [5] - Momentum Score capitalizes on price trends and earnings outlook changes [6] - VGM Score combines all three styles to provide a comprehensive stock rating [7] Zacks Rank and Performance - The Zacks Rank is a proprietary model that utilizes earnings estimate revisions to guide investment decisions, with 1 (Strong Buy) stocks achieving an average annual return of +23.93% since 1988, significantly outperforming the S&P 500 [8] - There are over 800 stocks rated 1 or 2, making it essential for investors to use Style Scores to narrow down choices [9] Stock Selection Strategy - To maximize returns, investors should focus on stocks with a Zacks Rank of 1 or 2 and Style Scores of A or B [10] - Stocks with lower ranks, even with good Style Scores, may still face declining earnings forecasts, increasing the risk of price drops [11] Company Spotlight: Atlassian - Atlassian is recognized as a leader in enterprise collaboration and workflow software, offering cloud-based solutions for organizational management [12] - The company holds a Zacks Rank of 2 (Buy) and a VGM Score of B, indicating strong potential [12] - Atlassian's stock has shown a 17.2% increase over the past four weeks, supported by an upward revision in earnings estimates for fiscal 2026 [13] - The Zacks Consensus Estimate for Atlassian has risen by $0.12 to $4.28 per share, with an average earnings surprise of +20.7% [13]

Customer Metrics - As of September 30, 2025, the company had more than 300,000 customers, with 53,017 customers generating over $10,000 in annualized recurring revenue from Cloud offerings [119]. - The number of customers with greater than $10,000 in Cloud ARR increased from 51,978 in June 2025 to 53,017 in September 2025 [120]. Financial Performance - Total revenues for the three months ended September 30, 2025, increased by $244.8 million, or 21%, compared to the same period in 2024, reaching $1,432.6 million [139]. - Subscription revenues rose by $242.6 million, or 21%, driven by paid seat expansion and price increases, totaling $1,374.5 million for the period [140]. - Non-GAAP net income for the three months ended September 30, 2025, was $275.7 million, compared to $199.7 million in the same period of 2024 [172]. - Free cash flow for the three months ended September 30, 2025, was $114.6 million, an increase of $40.3 million compared to the same period in 2024, primarily due to higher net cash provided by operating activities [121]. - Free cash flow for the three months ended September 30, 2025, was $114.6 million, up from $74.3 million in the same period of 2024 [173]. Revenue and Cost Structure - Subscription revenues are expected to continue to be the primary driver of revenue growth, particularly from Cloud offerings, with fluctuations based on customer buying patterns [125]. - Cost of revenues increased by $40.3 million, or 19%, primarily due to restructuring charges of $31.6 million, resulting in a total cost of $257.9 million [143]. - The company anticipates an increase in costs of revenues as it continues to invest in its cloud-based infrastructure to support Cloud customers [128]. - Gross margin is expected to remain approximately flat, driven by optimization of Cloud infrastructure costs, despite a revenue mix shift from Data Center to Cloud offerings [129]. Expenses - Research and development expenses grew by $152.9 million, or 25%, totaling $756.0 million, mainly due to increased compensation expenses [144]. - Marketing and sales expenses increased by $84.0 million, or 33%, reaching $336.4 million, attributed to higher compensation and advertising costs [145]. - General and administrative expenses rose by $31.9 million, or 22%, totaling $178.5 million, primarily due to increased compensation and legal fees [146]. - The company recorded restructuring charges totaling $55 million for the three months ended September 30, 2025, including $27.9 million in severance and termination benefits [113]. Cash Flow and Investments - Net cash provided by operating activities increased by $48.2 million to $128.7 million for the three months ended September 30, 2025, compared to $80.5 million in the same period of 2024 [158]. - Net cash used in investing activities rose by $42.0 million to $60.7 million for the three months ended September 30, 2025, primarily due to strategic investments and acquisitions [159]. - Net cash used in financing activities increased by $66.1 million to $252.8 million for the three months ended September 30, 2025, mainly due to stock repurchases [160]. - The company repurchased approximately 1.4 million shares of Class A Common Stock for about $249.9 million at an average price of $180.74 per share during the three months ended September 30, 2025 [164]. - The company has $921.3 million remaining for repurchase under the 2024 Repurchase Program as of September 30, 2025 [164]. - The company acquired The Browser Company of New York Inc. for approximately $610 million, funded through existing cash [166]. - A definitive agreement was made to acquire A Software Company for approximately $1.0 billion, expected to close in the second quarter of fiscal year 2026 [167]. Other Financial Metrics - Other income increased by $38.2 million, or 197%, resulting in a net income of $18.8 million, compared to a loss of $19.4 million in the prior year [147]. - Interest income increased by $1.3 million, or 4%, totaling $29.8 million, due to higher investment income from increased cash balances [148]. - Interest expense rose by $1.3 million, or 18%, totaling $8.6 million, primarily due to the amortization of interest rate swap contracts [149]. - The provision for income taxes decreased by $98.1 million, primarily due to changes in the mix of earnings and losses in foreign jurisdictions [150]. - As of September 30, 2025, the company had cash and cash equivalents totaling $2.3 billion and marketable securities of $456.0 million [157]. Strategic Changes - The company plans to end-of-life its Data Center deployment offering, ceasing sales of term licenses to new customers in March 2026 and to existing customers in March 2028 [111]. - Research and development expenses focus on building new apps and AI agents, enhancing Cloud infrastructure, and advancing artificial intelligence capabilities [131]. - Restructuring charges included stock-based compensation expense related to the rebalancing of resources for the three months ended September 30, 2025 [175]. - There have been no material changes to market risk from the information presented in the Annual Report on Form 10-K for the year ended June 30, 2025 [176].

Core Viewpoint - Atlassian Corporation (NASDAQ:TEAM) is identified as a stock with exponential growth potential heading into 2026, despite a recent downgrade in price target by TD Cowen analyst Derrick Wood from $220 to $205, maintaining a "Neutral" rating [1][2]. Group 1: Analyst Insights - The analyst's neutral stance is supported by consistent demand trends and a strong revenue outlook for the upcoming quarter, aided by recent revenue recognition changes and M&A activities [2]. - Concerns exist regarding Atlassian's new go-to-market strategies and AI positioning, which require time to demonstrate effectiveness [3]. - The transition away from Data Center licenses and related revenue recognition changes are noted as potential risks [3]. Group 2: Investment Management Perspective - Artisan Partners highlighted Atlassian as a top detractor in their Q2 2025 investor letter, citing disappointing quarterly results due to delays in signing large enterprise contracts [4]. - Other headwinds include tariff pressures on customers' software budgets and the potential impact of AI on knowledge worker jobs, although long-term profit cycle remains unchanged [4]. - The hiring of a new chief revenue officer in late 2024 is seen as a move to enhance senior management talent in sales, marketing, and R&D [4]. Group 3: Market Positioning - Despite acknowledging Atlassian's potential, some analysts believe that certain AI stocks present greater upside potential with less downside risk [5].

Core Insights - The company reported strong volume and revenue growth driven by the Britvic acquisition, with successful integration and synergy realization [2] - Despite a challenging consumer environment, solid underlying volume and revenue growth was achieved in Western Europe, along with sequential improvement in Asia [2] - The company has taken decisive actions to adjust its cost base to protect earnings growth and ensure continued investments in the business [2] - Full-year earnings guidance has been maintained [2] Group Headlines - The Britvic acquisition and consolidation of Gorkha Brewery contributed significantly to the group's performance [3]

Core Viewpoint - Atlassian forecasts second-quarter revenue above estimates, driven by strong demand for its enterprise software services as businesses upgrade to integrate artificial intelligence [1] Group 1 - The company is betting on robust demand for its software solutions, indicating a positive outlook for revenue growth [1] - The anticipated revenue increase is attributed to businesses' efforts to modernize their operations and incorporate AI technologies [1]

Core Insights - Atlassian reported FY26 Q1 earnings with total revenue of $1.4 billion, reflecting a year-over-year increase of 21% [1] - Cloud revenue reached $998 million, marking a year-over-year growth of 26% [1] Financial Performance - Total revenue: $1.4 billion, up 21% year-over-year [1] - Cloud revenue: $998 million, up 26% year-over-year [1]