I agree with everything that you said, Madrid has all the superstars in the world from the history and is the strongest in European competition. However, Atalanta only has average players that looks very strong due to their current form. When analyzing on a football match, you check if the teams are in form or not. Real Madrid is not in form like previous seasons which gives Atalanta the chance to win the match, because they are in form.
Apart from what you said, I actually hope their match can be fierce even though Real Madrid's performance has not been good so far. Because Ancelotti will definitely find a way for his team's performance to improve a little when facing Atalanta in the Champions League because Madrid must be able to win in three matches in this phase. And Atalanta themselves will also try to perform as well as possible in front of their own supporters so this could provide a level of fierceness in their match later.
I admit that Atalanta is in their best form and I also admit that Madrid performance is declining, but I assume that the top team Madrid will not possibly experience consecutive defeats in the UCL. Meanwhile, in this competition, Madrid has always been a favorite every season.
So in the meeting of the two teams later, I have a positive result between a draw or Madrid winning.
I think Ancelotti has been able to get a good player formation now after winning in La Liga, most likely Ancelotti uses that line-up.