2024-04-01 16:21:33 ET
Summary
- Generative AI has created a compelling narrative for Elastic's stock for the first time in a number of years.
- While the company's financial performance has been respectable, Elastic will need to follow through on investor expectations in coming quarters.
- This is an unfavorable setup as Elastic faces stiff competition in security and observability, and the near-term boost from generative AI is highly uncertain.
Elastic's ( ESTC ) valuation has tended to trail peers with comparable financial performance due to the company lacking a compelling narrative. This has changed over the past year with the growing use of LLMs, particularly in search use cases. As a result, Elastic's share price has moved significantly higher, although the company's valuation still looks reasonable relative to peers.
Elastic's financial performance has been respectable in recent quarters, with growth stabilizing and margins continuing to improve, but investors will want generative AI to drive a growth reacceleration in coming months if the stock is to move higher though. There is uncertainty in this regard, both in respect to the magnitude and timing of any AI related demand surge....
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Elastic: Chasing The Narrative