Last Update 06 Dec 25
Fair value Decreased 1.61%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.
Key Takeaways
- Generative AI adoption and digital transformation are boosting Elastic's platform usage, expanding its market, and deepening enterprise relationships through unified, data-intensive solutions.
- Migration to Elastic Cloud, product innovation in AI features, and cross-selling integrated offerings are driving margin improvement, predictable revenue, and higher customer value.
- Intensifying competition, pricing pressures, and market shifts toward integrated platforms threaten Elastic's growth prospects, margin performance, and ability to differentiate its offerings.
Catalysts
About Elastic- A search artificial intelligence (AI) company, provides software platforms to run in hybrid, public or private clouds, and multi-cloud environments in the United States and internationally.
- Rapid enterprise adoption of artificial intelligence applications, particularly generative AI, is driving greater compute
- and data-intensive workloads on Elastic's platform, expanding overall consumption and leading to increased annual recurring revenue and customer contract values.
- The shift to Elastic Cloud, including the growing adoption of serverless and fully managed solutions across all major cloud providers, is supporting margin improvement and predictability in revenue streams as higher-value enterprise and mid-market customers migrate from self-managed environments.
- Ongoing platform consolidation trends-where enterprises seek unified solutions for search, observability, and security-are enabling Elastic to displace legacy providers and drive cross-selling of its integrated offerings, leading to deeper customer relationships and improved net dollar retention rates.
- Elastic's continued investment in AI
- and ML-powered features, including innovations like their AI SOC Engine and advanced vector search capabilities, is reinforcing product differentiation and allowing for periodic pricing increases, which translates to higher gross margin and enhanced earnings potential.
- The explosion in unstructured data volume from digital transformation and IoT adoption is expanding Elastic's total addressable market, increasing the frequency and scale of customer deployments-which, combined with sales execution improvements, is expected to drive sustained multi-year revenue growth.
Elastic Future Earnings and Revenue Growth
Assumptions
How have these above catalysts been quantified?- Analysts are assuming Elastic's revenue will grow by 13.9% annually over the next 3 years.
- Analysts assume that profit margins will increase from -5.4% today to 2.2% in 3 years time.
- Analysts expect earnings to reach $50.5 million (and earnings per share of $0.79) by about September 2028, up from $-83.5 million today.
- In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 351.2x on those 2028 earnings, up from -116.1x today. This future PE is greater than the current PE for the US Software industry at 36.2x.
- Analysts expect the number of shares outstanding to grow by 3.43% per year for the next 3 years.
- To value all of this in today's terms, we will use a discount rate of 8.08%, as per the Simply Wall St company report.
Elastic Future Earnings Per Share Growth
Risks
What could happen that would invalidate this narrative?- Intensifying competition from hyperscale cloud providers' native search, observability, and security solutions (like Amazon OpenSearch) could erode Elastic's market share and constrain its long-term revenue growth and pricing power, pressuring gross margins and profitability.
- Elastic's reliance on an open source heritage may make it vulnerable to forks, "free rider" use, or third-party competitors offering similar capabilities at lower or no cost, potentially limiting future revenue expansion and increasing customer churn.
- The ongoing commoditization of search, observability, and security analytics tools may drive industry-wide pricing pressures and reduce Elastic's ability to differentiate, leading to lower average contract values and compressing net margins.
- As enterprises increasingly seek end-to-end, vertically integrated platforms (often from hyperscalers or full-stack security/analytics providers), Elastic's standalone offerings could face a shrinking addressable market, stalling revenue growth and impacting long-term earnings potential.
- High R&D and sales/marketing investments required to keep pace with rapid AI, cloud, and security innovation could weigh on net margins, especially if macroeconomic volatility leads to reduced enterprise IT budgets and delays in large multi-year contracts.
Valuation
How have all the factors above been brought together to estimate a fair value?- The analysts have a consensus price target of $120.16 for Elastic based on their expectations of its future earnings growth, profit margins and other risk factors. 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 $92.0.
- In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $2.3 billion, earnings will come to $50.5 million, and it would be trading on a PE ratio of 351.2x, assuming you use a discount rate of 8.1%.
- Given the current share price of $91.19, the analyst price target of $120.16 is 24.1% 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.
How well do narratives help inform your perspective?
Disclaimer
AnalystConsensusTarget 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 AnalystConsensusTarget 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 AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.
