Last Update 22 Jan 26

Fair value Decreased 0.16%

ESTC: GenAI And Large Deals Will Drive Long Term Upside

Analysts have trimmed their price targets on Elastic across several firms, and our updated fair value estimate now aligns slightly lower. This reflects mixed Q2 results, slower cloud growth, and peer multiple compression, even as analysts point to raised FY26 guidance, large deal progress, and ongoing GenAI and observability opportunities as supportive factors.

Analyst Commentary

Recent research on Elastic points to a split view, with several firms trimming price targets while still highlighting execution on large deals, GenAI adoption, and an improved medium term outlook. Even where ratings are more cautious, many analysts describe the latest quarter as mixed rather than weak and continue to reference raised FY26 guidance as an offsetting factor for valuation pressure.

Goldman Sachs, Citi, JPMorgan, Morgan Stanley, Truist, Barclays, DA Davidson, and Monness Crespi have all revised their views following the fiscal Q2 report. The common threads are softer cloud trends, peer multiple compression, and an earnings print that did not fully match earlier investor expectations, alongside commentary that points to healthier pipelines, progress in large cloud deals, and management confidence in consumption trends.

For you as an investor, this creates a backdrop where sentiment is not uniformly positive, but where several big firms still highlight company specific drivers such as GenAI, observability, and large deal traction as key watch items as the FY26 timeline gets closer.

Bullish Takeaways

Bullish analysts with Buy or Overweight ratings emphasize that raised FY26 revenue guidance and above consensus long term targets are important supports for Elastic's valuation, even after Q2 produced only a modest revenue beat.
Citi and other bullish analysts point to good progress in large cloud deals and what they describe as a healthier pipeline with better visibility into year end growth targets, which they see as important for sustaining Elastic's growth narrative.
Several Buy rated analysts focus on GenAI and observability as key growth vectors, highlighting broadening GenAI adoption and the view that Elastic is well positioned to participate in secular trends tied to AI driven workloads.
Despite lower price targets, bullish analysts at major firms such as JPMorgan and Morgan Stanley maintain positive ratings, arguing that peer multiple compression and a softer quarter explain the cuts, while strong large deal momentum and improved go to market execution remain intact in their view.

What's in the News

Elastic announced a more powerful Elastic Cloud Serverless on Amazon Web Services, citing up to 50% higher indexing throughput and 37% lower search latency using new AWS Graviton instances at no extra cost to users, with automatic rollout across AWS based serverless projects (Key Developments).
Elastic is partnering with the U.S. Cybersecurity and Infrastructure Security Agency to build a unified SIEM as a Service offering on Elastic Cloud, under a base year US$26 million contract with renewal options that bring the total anticipated value up to US$130 million through 2030 (Key Developments).
The company provided fiscal 2026 guidance, calling for Q3 revenue of US$437 million to US$439 million and full year revenue of US$1.715b to US$1.721b (Key Developments).
Elastic announced DiskBBQ, a disk friendly vector search algorithm in Elasticsearch 9.2 that is designed to reduce memory usage by keeping vector data on disk while targeting stable query latency at scale for AI and search workloads (Key Developments).
Orlando Bravo told the Financial Times that the software selloff is creating what he views as a huge buying opportunity, a comment that adds context to broader sentiment around software names such as Elastic (Periodicals).

Valuation Changes

The fair value estimate edged slightly lower from US$137.33 to US$137.11 per share, reflecting a very small adjustment in the model.
The discount rate moved marginally from 8.16% to 8.16%, indicating essentially unchanged assumptions about risk and required return.
Revenue growth is now set at 16.11% compared with 15.91% previously, a small upward adjustment to long-term top line expectations.
The net profit margin increased modestly from 2.78% to 2.82%, pointing to a slightly higher assumed level of profitability over time.
The future P/E was trimmed from 268.88x to 263.68x, a small reduction in the multiple applied to projected earnings.

Expanding GenAI capabilities and a unified platform drive demand for AI-powered analytics, increasing contract values and boosting long-term customer engagement.
Strategic cloud migration, platform consolidation, and major partnerships enhance recurring revenues, scalability, and profitability across enterprise markets.
Rising regulatory, competitive, and cost pressures combined with shifting enterprise preferences threaten Elastic's growth prospects, profitability, market share, and customer expansion opportunities.

Catalysts

About Elastic

A search artificial intelligence (AI) company, delivers hosted and managed solutions designed to run in hybrid, public or private clouds, and multi-cloud environments in the United States and internationally.What are the underlying business or industry changes driving this perspective?

Elastic’s deepening integration of GenAI and advanced AI features into its unified platform is driving strong uptake of high-value workloads in search, observability, and security, uniquely positioning the company to capture the surging demand for AI-powered data, search, and analytics as enterprises deploy new agentic and retrieval-augmented applications. This is expected to deliver both sustained revenue growth and expansion in average contract values.
The rapid growth and diversification of use cases for unstructured and machine-generated data—exacerbated by global trends like IoT, digital transformation, and automation—expands Elastic’s addressable market substantially, supporting the case for a long horizon of double-digit revenue increases as customers consolidate more data streams and analytics onto the Elastic platform.
Elastic’s accelerated pivot to Elastic Cloud and, more recently, to Cloud Serverless offerings leverages both the enterprise migration to cloud and the need for flexible, consumption-based deployments. These cloud-native architectures attract more enterprise customers, drive higher recurring and consumption-based revenues, and materially improve long-term gross margins through architectural efficiency.
The company’s strategy of cross-selling and upselling across a unified SaaS platform—especially as customers consolidate multiple legacy tools onto Elastic for observability, search, and SIEM—drives higher average revenue per user and increases customer stickiness, amplifying net expansion rates and supporting continued margin leverage in the model.
Strategic partnerships and technical integration with all three major hyperscale cloud providers, along with enterprise and public sector focus, improve Elastic’s distribution and scalability, positioning the company to continue growing large contracts and new customer segments, which will bolster both top-line and multiyear profitability.

Elastic Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

This narrative explores a more optimistic perspective on Elastic compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
The bullish analysts are assuming Elastic's revenue will grow by 15.8% annually over the next 3 years.
The bullish analysts assume that profit margins will increase from -7.3% today to 6.7% in 3 years time.
The bullish analysts expect earnings to reach $153.4 million (and earnings per share of $1.49) by about August 2028, up from $-108.1 million today. The analysts are largely in agreement about this estimate.
In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 132.0x on those 2028 earnings, up from -75.8x today. This future PE is greater than the current PE for the US Software industry at 35.0x.
Analysts expect the number of shares outstanding to grow by 2.71% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 8.11%, as per the Simply Wall St company report.

Elastic Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

Ongoing global increases in data privacy regulations, such as GDPR and CCPA, could restrict the data collection and usage that underpins many Elastic solutions, leading to potential declines in enterprise demand and downward pressure on revenue growth.
The accelerating shift by large enterprises toward proprietary, native cloud platforms may limit reliance on third-party tools like Elastic Stack, which could negatively impact customer acquisition, retention, and ultimately reduce Elastic’s total addressable market and long-term revenues.
Elastic’s high and rising R&D and sales spending required to compete and innovate in AI, serverless, and observability could limit meaningful improvement in net margins and earnings, especially as management signals ongoing front-loaded investments will only modestly expand margins in fiscal 2026.
Intensifying competition from better-capitalized incumbents and cloud hyperscalers—as well as increased adoption of managed, native cloud services—could pressure Elastic’s pricing power, impede market share gains, and erode both existing customer expansion opportunities and future revenue bases.
Legal and reputational risks stemming from Elastic's licensing changes and past disputes with major cloud vendors like AWS could harm strategic partnerships, limit community goodwill, and create customer hesitation, potentially dampening long-term revenue growth and heightening cost structures.

Valuation

How have all the factors above been brought together to estimate a fair value?

The assumed bullish price target for Elastic is $140.57, which represents two standard deviations above the consensus price target of $108.65. This valuation is based on what can be assumed as the expectations of Elastic's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $143.0, and the most bearish reporting a price target of just $75.0.
In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $2.3 billion, earnings will come to $153.4 million, and it would be trading on a PE ratio of 132.0x, assuming you use a discount rate of 8.1%.
Given the current share price of $77.58, the bullish analyst price target of $140.57 is 44.8% higher.
We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

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Disclaimer

AnalystHighTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystHighTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystHighTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

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