Two Undervalued Enterprise Software Stocks: A Value Investor's 2026 Outlook

The market is pricing in exaggerated fears of AI disruption, leading to deep discounts across the software sector. This sentiment has created a potential mispricing, but the investment case for each company hinges on their ability to compound value through durable competitive advantages. The central question is whether the severe sell-offs in Figma and Atlassian have created a buying opportunity for durable businesses at a discount to their intrinsic value.

, . This dramatic repricing reflects a broader market overreaction. For Figma, the company could grow its revenue by 50% over the next couple of years, yet the stock's continued decline has created attractive investment opportunities amid its continued growth. Atlassian, meanwhile, , leaving it trading at a "deeply discounted valuation" according to Morgan Stanley. The analyst argues that market concerns around AI disrupting Atlassian's seat-based pricing model are exaggerated, viewing AI instead as a structural tailwind.

This sentiment creates a potential opportunity to buy durable businesses at a discount. The key for a value investor is to separate the noise of quarterly volatility from the long-term compounding power of a wide moat. The market's current pessimism may be pricing in a future where entrenched software products vanish overnight. In reality, the entrenched nature of these tools-Figma's platform for digital design collaboration, Atlassian's suite for team workflows-suggests a more gradual evolution. The bottom line is that when quality businesses trade at such steep discounts, it forces a re-examination of the underlying fundamentals. The opportunity lies in identifying which companies possess the durable competitive advantages to not just survive, but thrive, through the next cycle.

Analyzing the Moats: Figma's Network Lock-in vs. Atlassian's Ecosystem

For a value investor, the durability of a company's competitive advantage is paramount. It determines whether profits can be protected and reinvested over decades. Both Figma and Atlassian possess formidable moats, but they are built on different foundations.

Figma's primary defense is a powerful network effect and ecosystem lock-in. The platform is not just a design tool; it is the central hub for digital design collaboration. Its real-time multiplayer technology creates a shared workspace where teams co-create. This creates immense switching costs. When an entire design team is working on a single file, moving to a competitor becomes a logistical nightmare. The company's is a clear metric of this lock-in, showing that existing customers spend more over time. While AI features are integrated, they are enhancements to this core collaborative workflow, not a replacement for it. The market's fear that AI will make Figma obsolete is a classic overreaction. AI is a tool that strengthens the platform's utility, not a disruptor of its fundamental purpose.

Atlassian's moat is equally deep, built on an entrenched ecosystem of integrated tools. Its suite of products-Jira for project management and Confluence for documentation-forms a workflow backbone for countless enterprise teams. The strength lies in the high switching costs and the complexity of integration. Migrating from Jira and Confluence to a new system means not just learning new software, but also re-architecting established processes and potentially losing historical data. This creates a durable, sticky customer base. Morgan Stanley's view that market concerns around AI disrupting Atlassian's seat-based pricing model are exaggerated is compelling. AI is more likely to be a feature layered onto these existing tools, enhancing their value and potentially justifying continued seat growth, rather than rendering them obsolete.

The key risk for both is the same: the perceived threat of AI. However, a value investor assesses this not as an existential crisis, but as a potential catalyst for evolution. Figma's network effect and Atlassian's ecosystem are not easily replicated. They are built on years of user adoption and process integration. The market's current pessimism may be pricing in a future where these entrenched tools vanish overnight. In reality, the path is more likely one of gradual adaptation, where the companies that best integrate new capabilities like AI will strengthen their moats further. The opportunity here is to buy these durable businesses while the market is distracted by the noise of technological change.

Financial Quality and the Path to Sustainable Value

The durability of a moat is only half the story. For a value investor, the critical question is whether that advantage translates into high-quality earnings and a clear path to sustainable profitability. The financial profiles of Figma and Atlassian suggest two different but compelling trajectories.

Figma's financial engine is a powerhouse of growth. The company's , . This explosive expansion, , demonstrates a powerful compounding engine. More importantly, the company's signals that it is not just acquiring new customers but also deepening relationships with existing ones, driving expansion revenue. Analysts project this growth to continue, . The path to profitability is implied by this scale and retention, but the market's severe discount suggests investors are assigning a high risk premium to this future cash flow, likely due to the company's current unprofitability and the broader software sector's volatility.

Atlassian presents a more mature financial picture, with a clear path to improved profitability. The company is expected to report robust results for its second quarter of fiscal 2026, with Morgan Stanley citing a potential 26% operating margin for the period. This would mark a significant improvement and highlight the strength of its Cloud services growth. The analyst's view that the stock's 25% year-to-date decline has created a "reduced valuation opportunity" is grounded in this outlook. , and the focus is now on margin expansion as the business matures. The market's skepticism, particularly around AI's impact on its seat-based model, appears to be pricing in a future of stagnation, while the company's fundamentals point to continued operational leverage.

The valuation discount for both companies is the clearest signal of the market's risk premium. Figma trades at a steep discount from its peak, despite its growth trajectory, while Atlassian's stock has lost a third of its value in a single year. This divergence between price and the underlying financial momentum-Figma's hyper-growth and Atlassian's margin expansion-is the core of the value opportunity. For the patient investor, it represents a chance to acquire a durable business at a price that does not fully reflect its future cash-generating potential. The risk is not in the moat or the growth, but in the market's prolonged pessimism.

Valuation and Catalysts: What to Watch in 2026

The market's pessimism has created a discount, but the investment thesis hinges on execution. For a value investor, the path forward is clear: monitor specific catalysts and leading indicators that will determine if the current valuation is a buying opportunity or a value trap.

For Figma, the primary catalyst is continued execution on its explosive growth trajectory and a clear roadmap to improving operating margins. The company's , a projection that underpins the potential for a significant re-rating. However, the market's deep skepticism is likely tied to the company's current unprofitability and the high risk premium assigned to its future cash flows. The key will be whether management demonstrates a credible path to converting its massive revenue scale-already approaching $1 billion in trailing sales-into sustainable profitability. Investors should watch for consistent quarterly revenue beats and, more importantly, signs that operating expenses are being disciplined as the business scales.

Atlassian presents a more immediate near-term catalyst. The company's second quarter of fiscal 2026 earnings, scheduled for February 5, 2026, will be a critical test. Morgan Stanley's bullish view, which sees a for the period, provides a clear benchmark. A beat on this margin target would validate the thesis that the company is successfully navigating its Cloud transition and achieving operational leverage. The stock's 25% year-to-date decline suggests the market is pricing in a miss, making this report a potential inflection point.

Beyond these specific events, investors should monitor cloud services growth and customer retention as leading indicators of moat strength for both companies. For Figma, its revenue retention rate of 131% is a powerful signal of ecosystem lock-in. Any deterioration in this metric would be a red flag, indicating customers are not expanding their usage. For Atlassian, the focus is on the pace and quality of its Cloud services growth, which is the engine for higher margins. Steady, high-single-digit growth in cloud revenue per customer would confirm the durability of its workflow ecosystem.

The bottom line is that the market's fear of AI disruption is a distraction. The real story in 2026 will be one of execution. Figma must prove it can grow and then profit. Atlassian must deliver on its margin expansion promise. By focusing on these concrete metrics and catalysts, the patient investor can separate the noise from the signal and determine if the current price offers a true margin of safety.