Elastic Raises Revenue Expectations with Generative AI

Data analytics company Elastic is experiencing increased revenue and profit thanks to the benefits of generative artificial intelligence (AI). Experts are recommending buying the stock, as AI has the potential to deliver even more financial gains.

Elastic recently announced its updated earnings forecast for the year ending in April. The company now expects to earn between $1.06 and $1.15 per share, surpassing its previous projection of $1.01 to $1.11 a share. This outperformed the consensus estimate of $1.08 per share among analysts tracking the stock on FactSet.

Additionally, Elastic's total revenue is anticipated to reach between $1.247 billion and $1.253 billion, which is higher than its previous estimate. The midpoint of this range aligns with the upper end of the $1.248 billion estimated by analysts.

Following these positive updates, the stock jumped 23% to $98.50 during premarket trading on Friday.

According to Elastic's Chief Operating Officer Janesh Moorjani, customers significantly increased their consumption in the latest quarter. The introduction of Elasticsearch Relevance Engine (ESRE) in May, which utilizes generative AI, incentivized customers to upgrade their applications.

One of Elastic's applications powered by generative AI is the Elastic AI Assistant, available exclusively in the Enterprise tier of their services. This plan starts at $175 per month.

Wells Fargo analyst Andy Nowinski upgraded Elastic's stock to Overweight from Hold and increased the target price from $70 to $115. Nowinski believes Elastic is well-prepared to handle the demands arising from generative AI workloads.

Meanwhile, Truist analyst Joel Fishbein and his team maintained their Buy rating on the stock and raised the price target from $85 to $100. Fishbein stated that ESRE could be responsible for Elastic surpassing expectations for sales or earnings in fiscal 2025.

However, Elastic's CEO Ashutosh Kulkarni emphasized that generative AI solutions have not yet become a major catalyst for revenue. In an uncertain environment, customers still prioritize cost management, noted Kulkarni.