Elastic N.V. (ESTC): A Bull Case Theory

We came across a bullish thesis on Elastic N.V. on Compounding Your Wealth’s Substack by Sergey. In this article, we will summarize the bulls’ thesis on ESTC. Elastic N.V.'s share was trading at $73.38 as of January 28th. ESTC’s trailing and forward P/E were 125.08  and 26.53 respectively according to Yahoo Finance.

Elastic (ESTC) delivered a strong quarter, demonstrating the company’s growing momentum in the AI-search era. Revenue rose 16% YoY to $423 million while gross margin remained steady at 75%, reflecting a resilient business model. Operating efficiency is improving, with operating margin up more than nine points YoY, and free-cash-flow margin surpassing 20%, highlighting strong cash generation.

Elastic Cloud continues to be the growth engine, expanding 22% YoY and now accounting for over half of total revenue, supported by accelerating large-deal activity and platform consolidation across security and observability. The company’s enterprise base remains solid, with 1,600 customers spending over $100K and a stable 112% net revenue retention, underscoring durable demand.

Margins are improving meaningfully as SG&A and R&D as a percentage of revenue decline, creating a clear path toward consistent profitability. High-value AI workloads are driving elevated consumption, enhancing leverage in the cloud model. While GAAP losses persist, the stock’s recent pullback of 12.9% reflects market skepticism despite improving fundamentals. Management raised guidance for Q3 FY26 and the full year, signaling confidence in mid-teens revenue growth, expanding non-GAAP operating margins, and continuing an active share buyback program.

Elastic’s strategic focus on GenAI is gaining clarity, with Jina AI enabling multilingual and multimodal embeddings, and Agent Builder broadening enterprise AI adoption. Significant security wins above $20 million and 17% YoY cRPO growth reinforce Elastic’s position in mission-critical data environments. With improving margins, accelerating cloud scale, and a compelling AI narrative, Elastic presents a unique growth story. Though valuation at ~4.8x EV/S is not inexpensive, the combination of revenue growth, margin expansion, and AI-driven leverage positions the company for continued upside as execution compounds.

Previously we covered a bullish thesis on Datadog, Inc. (DDOG) by @bigbullcap in May 2025, which highlighted the company’s multi-product engine, diversified ARR across infrastructure monitoring, APM, log analytics, and security, and its ability to deepen customer penetration. The company's stock price has appreciated approximately by 22.80% since our coverage. The thesis still stands as DDOG continues to expand its portfolios. Sergey shares a similar perspective but emphasizes Elastic’s AI-driven cloud growth, margin expansion, and enterprise adoption.

Elastic N.V. is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 52 hedge fund portfolios held ESTC at the end of the third quarter which was 59 in the previous quarter. While we acknowledge the risk and potential of ESTC as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than ESTC and that has 10,000% upside potential, check out our report about this cheapest AI stock.

READ NEXT: 30 Stocks That Should Double in 3 Years and 11 Hidden AI Stocks to Buy NOW 

Disclosure: None.