ESTC: GenAI Adoption And Large Deal Momentum Will Drive Long-Term Upside

Analysts have trimmed their average price target on Elastic to about $106 from roughly $108, citing mixed Q2 execution, slowing cloud momentum, and a modestly higher risk profile, even as they highlight resilient large deal activity, raised long term guidance, and growing GenAI opportunities.

Analyst Commentary

Analyst opinion on Elastic is split, with several firms trimming price targets but maintaining constructive views on the company’s long term positioning, while others have moved to the sidelines amid concerns about execution and valuation following the latest quarter.

Bullish analysts acknowledge the softer cloud trajectory and below trend revenue beat, yet continue to see Elastic as well placed to capture larger cloud and GenAI driven deals over time, supported by raised medium term revenue targets and an expanding pipeline.

Bearish analysts, by contrast, focus on the near term risk that mixed quarterly execution, decelerating cloud growth, and a more volatile macro backdrop could limit multiple expansion and cap upside to the shares despite the improved long range guidance.

Bullish Takeaways

• Bullish analysts highlight that Elastic raised its FY26 revenue guidance and medium term growth framework. They view this as reinforcing confidence that the company can still deliver 20 percent plus growth over time despite recent quarterly volatility.
• Several firms keeping Buy or Overweight ratings point to strong large deal momentum and a healthier pipeline. They believe this improves visibility into year end growth targets and supports the current valuation.
• Some bulls view the post earnings pullback as overdone. They argue that progress in large cloud deals and expanding GenAI use cases strengthens the company’s longer term competitive position and upside potential.
• Incremental enthusiasm around new product announcements and Generative AI tailwinds leads certain firms to see Elastic’s market opportunity as substantial, even if they characterize the stock as fairly valued in the near term.

Bearish Takeaways

• Bearish analysts emphasize that the latest quarter delivered only a modest revenue beat with net new cloud revenue down meaningfully. They see this as evidence of slowing growth and execution risk at a time when expectations were high.
• Multiple Neutral ratings and downgrades reflect concern that the stock’s prior valuation premium is harder to justify after decelerating cloud trends and below expected upside. This has prompted cuts to price targets into the high double digit range.
• Some cautious views center on the macro environment and competitive dynamics in observability. Ongoing innovation demands and potential pricing pressure could weigh on growth and margins, limiting near term multiple expansion.
• At least one firm argues that Elastic needed a cleaner quarter with more visible acceleration to sustain investor enthusiasm. They contend that the lack of near term “sizzle” may keep performance more muted even if the long term story remains intact.

What's in the News

• Launched multiple new AI observability and agent-focused capabilities, including Agent Builder, Streams for log analysis, and a managed OpenTelemetry Protocol endpoint to simplify ingest and improve incident resolution in Elastic Observability.
• Introduced DiskBBQ, a disk-friendly vector search algorithm in Elasticsearch 9.2 that reduces RAM requirements and improves scalability for large scale vector search workloads.
• Announced new integrations and enhancements for Amazon Bedrock AgentCore and the Elastic Distribution of OpenTelemetry (EDOT), expanding support for AI agents and simplifying large scale telemetry management.
• Issued new guidance for the third quarter and full fiscal 2026, targeting mid-teens percentage revenue growth at the midpoint.
• Authorized and began executing a share repurchase program of up to $500 million, with over $110 million already deployed under the October 2025 buyback authorization.

Valuation Changes

• Fair Value Estimate has edged down slightly to $106.22 from $107.96. This reflects a modest reduction in the intrinsic value outlook.
• Discount Rate has risen slightly to 8.19 percent from 8.10 percent. This implies a marginally higher perceived risk profile.
• Revenue Growth has ticked down slightly to 15.43 percent from 15.65 percent. This indicates a small tempering of top line expectations.
• Net Profit Margin has declined moderately to 5.20 percent from 5.92 percent. This signals a less favorable medium term profitability outlook.
• Future P/E has increased meaningfully to 114.93x from 103.65x. This suggests a higher valuation multiple despite the slightly softer fundamentals.