Following its impressive Q1 fiscal 2025 earnings and optimistic expectations, Atlassian Corp. (NASDAQ:TEAM) shares rose about 17% Friday. While KeyBanc also raised the company to Overweight with a new $260 target, Morgan Stanley kept its Overweight rating on Atlassian, effectively adjusting its price target from $224 to $259. Exceeding expectations and confirming Atlassian's investment in Gen AI-enabled Atlassian Intelligence and its Cloud platform, the report showed a 31% YOY increase in cloud revenue for the company. As Morgan Stanley's Keith Weiss notes, given the company's plans for continuous expansion into 2025, the enlarged portfolio and AI capabilities present great monetizing possibilities.

Operating margins for Q1 were 22.6%, or 360 basis points above consensus estimates, which added to the positive sentiment despite lower free cash flow resulting from difficult comparisons and higher bonus payouts. While Atlassian's operating margin projection matched market estimates, its Q2 view topped consensus on total and cloud revenue projections. Wall Street's optimistic posture has been reinforced by Atlassian's performance and development possibilities in AI-enhanced solutions; investors expect ongoing momentum in its cloud services and AI-driven product offers.

This article first appeared on GuruFocus.