Last Update 20 Dec 25

Fair value Decreased 1.59%

ESTC: GenAI Demand Will Drive Long-Term Upside Despite Near-Term Cloud Headwinds

Analysts have modestly trimmed their fair value estimate for Elastic to approximately $104.54 from about $106.22. This reflects lowered price targets across the Street as mixed Q2 execution, softer cloud momentum, and broader multiple compression temper enthusiasm around otherwise solid large deal activity, GenAI progress, and raised long term guidance.

Analyst Commentary

Street commentary following the quarter underscores a split view on Elastic's risk reward, with valuation and near term execution concerns offset by growing confidence in its longer term growth algorithm and GenAI positioning.

Bullish Takeaways

Bullish analysts highlight raised FY26 revenue and long term growth guidance as supportive of a premium multiple over time, even after near term target cuts.
Several firms with Buy or Overweight ratings point to strong large deal momentum and a healthier late stage pipeline, which they see as underpinning management's year end growth targets.
Progress in cloud based deals and expanding GenAI use cases is viewed as an incremental growth driver, with some expecting AI related consumption to add several points to medium term revenue growth.
Medium term targets of 20 percent plus growth, driven by subscription and GenAI tailwinds, are seen as better than previously expected and supportive of upside if execution normalizes.

Bearish Takeaways

Bearish analysts emphasize the below trend revenue beat and deceleration in net new cloud revenue, which they argue justify lower price targets and a more balanced risk reward.
Several Neutral ratings reflect concern that Elastic needed a cleaner, higher quality quarter in the current macro backdrop, with mixed Q2 execution limiting near term multiple expansion.
Some see the stock as fairly valued relative to its growth profile, noting that current levels already discount GenAI optionality and that broader peer multiple compression is a headwind.
Visibility into a reacceleration in cloud and sustained consumption growth remains a key debate, with cautious voices waiting for more consistent execution before taking a more constructive view on valuation.

What's in the News

Elastic and ECS secured a $26 million base year contract, with renewal options up to a total of $130 million, to partner with CISA on a unified SIEM as a Service platform for U.S. federal civilian agencies, standardizing cybersecurity monitoring across FCEB agencies.
The company completed a $114.15 million share repurchase tranche, buying back 1,351,652 shares, as part of a broader $500 million, open ended buyback program authorized by the Board.
Elastic issued fiscal 2026 guidance calling for 16 percent year over year revenue growth at the midpoint, to a range of $1.715 billion to $1.721 billion, with Q3 revenue projected to grow 15 percent year over year.
Elastic expanded its GenAI and observability portfolio with new offerings including DiskBBQ for disk efficient vector search, Elastic Inference Service for GPU accelerated inference, Agent Builder for custom AI agents on enterprise data, and Streams for AI powered log analysis.
The company deepened its observability and OpenTelemetry strategy by adding a managed OTLP endpoint, new EDOT SDK capabilities and PHP support, and integration with Amazon Bedrock AgentCore to simplify large scale telemetry and AI agent monitoring.

Valuation Changes

Fair Value Estimate reduced modestly to approximately $104.54 from about $106.22, reflecting a small downward adjustment in intrinsic value.
Discount Rate edged down slightly to roughly 8.15 percent from about 8.19 percent, implying a marginally lower required return.
Revenue Growth essentially unchanged at around 15.43 percent, indicating no material shift in long term top line expectations.
Net Profit Margin effectively flat at about 5.20 percent, suggesting stable long term profitability assumptions.
Future P/E lowered moderately to roughly 110.9x from about 114.9x, signaling a somewhat less aggressive multiple on forward earnings.

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.What are the underlying business or industry changes driving this perspective?

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.

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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.

AI Trends And Cloud Migration Will Expand Market Reach