The stock market’s recent downturn has largely impacted the technology sector, leaving investors on high alert. At this moment, the Nasdaq Composite, heavily weighted with tech stocks, has dipped 11% from its peak, while the S&P 500 index has fallen by 7%.
Historically, the U.S. stock market has consistently rebounded to new heights, suggesting that market corrections offer unique buying opportunities. Those on the hunt for a bargain in artificial intelligence (AI) stocks might find Elastic N.V. (ESTC) intriguing. The stock is attractively priced given its recent robust financial performance.
Elastic’s stock price has slipped considerably from its 2025 highs and remains 46% below its all-time peak during the tech boom of 2021. There’s a good chance investors will wish they had seized this buying opportunity in a few years.
### Tackling Big Data with AI-Enhanced Search
Elastic forecasts an astonishing 480 exabytes of data will be generated daily by 2025. An exabyte translates to a monumental 1 million terabytes, illustrating the vast amount of digital data created as more businesses transition online. This constant stream of data arises from everyday operations involving employees, customers, and transactions.
To address this, Elastic developed Elasticsearch, a tool that functions like a search engine for an organization’s internal data. Rather than manually sorting through countless files, employees can quickly retrieve information by entering a search query. It’s equally beneficial for e-commerce websites, helping customers efficiently locate the products they need.
Elastic’s Elasticsearch Relevance Engine (ESRE) integrates AI to enhance the traditional Elasticsearch tool. This upgrade significantly improves natural language processing, generating precise results even if users aren’t crystal clear on their queries. It comprehends the semantics—word and phrase meanings—heightening the search function’s effectiveness.
Imagine you’re about to tackle a DIY project in your backyard. Typically, you’d perform multiple Google searches to gather product and instruction information. If your local hardware store employs ESRE on its website, you can simply describe your project and provide measurements. The system will instantly suggest all necessary products and tools.
With just a few clicks, you can assemble your shopping cart and check out, saving both time and effort with minimal internet searching required.
### Impressive Revenue Growth and Rising Profits
Elastic recently reported a remarkable $382 million in revenue for its fiscal 2025 third quarter (ending January 31), marking a 17% increase from the previous year. Elastic Cloud alone contributed $180 million, growing at a brisk 26%.
Many are opting for Elastic Cloud to deploy tools like Elasticsearch, favoring it over on-premise or self-managed solutions. Elastic handles server infrastructure, software updates, backups, and security, making it hassle-free for users.
Elastic’s stellar third-quarter performance is particularly impressive given its prudent expense management aimed at boosting profitability. Though it recorded a minor operating loss of $4.6 million under generally accepted accounting principles (GAAP), this figure is an 82% improvement from the prior-year loss of $26.6 million.
On an adjusted (non-GAAP) basis, which excludes one-off and noncash expenditures, Elastic achieved an operating profit of $64 million. Ultimately, this translated to a $67.1 million net profit, up 78% from the previous year’s quarter.
Sustained profitability bodes well for Elastic’s long-term stability, promising consistent returns for investors with reduced volatility.
### Evaluating Elastic as a Potential Investment
Considering Elastic is not yet consistently profitable under GAAP, we look at the price-to-sales ratio (P/S) instead of the traditional price-to-earnings ratio (P/E) to evaluate its stock. This ratio divides market capitalization by trailing-12-month revenue.
Elastic’s P/S ratio currently stands at 7.2, which is a 45% discount compared to its long-term average of 13.1 since its IPO in 2018.
Valuation could be why Wall Street views Elastic favorably. The Wall Street Journal reports that of the 29 analysts covering the stock, 19 rate it as a ‘buy.’ Two others hold an ‘overweight’ (positive) stance, and eight advise holding. None suggest selling.
Furthermore, analysts’ average target price is $136.26, pointing to a potential 40% gain over the next year to 18 months. The highest target, $160, suggests the stock could soar by as much as 65%.
Given the current market volatility, investors eyeing opportunities in the AI sector may consider adding Elastic to their portfolios.
