Elastic N.V. (NYSE: ESTC) is known for its search and analytics tools that make AI-powered data organization possible. Its Elasticsearch product allows users to quickly complete full-text searches across petabytes of both structured and unstructured data, a process essential to infrastructure monitoring, security analytics, and much more.
Despite its relevance to the fast-growing AI space, Elastic's share price has collapsed over the last year, falling by nearly 37%. However, the share price decline masks a number of strong points in a bullish argument about ESTC going forward. For one, the company has recently launched key product upgrades and new tools to strengthen its software-as-a-service model and to help build advanced AI agents.
Further, many of Elastic's fundamentals appear strong, which should help buoy the firm while it seeks to gain new traction amongst competitors in the AI space. Finally, after a disappointing year in terms of share price, ESTC is starting 2026 displaying signs of being undervalued.
Elastic’s Agent Builder Expands Its Push Into AI Agents
In mid-January, Elastic announced an upgraded version of Elastic Cloud Serverless, an auto-scaling tool for Elasticsearch available via Amazon's (NASDAQ: AMZN) AWS, which can provide as much as 50% higher indexing throughput along with lower search latency.
One of the biggest issues to navigate for a service like Elasticsearch, which tackles massive amounts of data and purports to provide real-time results, is scaling. Elastic Cloud Serverless can provide reliable scaling for a number of different use cases, freeing up customers from having to manage infrastructure.
This latest development supports continued robust growth of Elastic's core search tool, but perhaps an even more exciting prospect can be found in its Agent Builder. Also launched in January, Agent Builder is a full set of tools to facilitate the building of secure, reliable AI agents. A natural outgrowth of Elastic's search products, Agent Builder goes a step further, integrating search and analytics with a simplified process for developers to build unique AI agents for their own uses. Agent Builder is available within Elastic Cloud Serverless.
Both of these updates should help to grow interest in Elastic Cloud Serverless going forward. The product's unique pay-as-you-use pricing model also means it can appeal to customers regardless of whether they intend to use it significantly or only moderately.
Elastic’s Fundamentals Stay Strong Despite the Recent Sell-Off
Looking more closely at Elastic's fundamentals based on its second-quarter fiscal 2026 earnings (for the period ended Oct. 31, 2025), there are several reasons the company remains well positioned despite its recent sell-off. For one, revenue of $423 million—up 16% year-over-year (YOY)—beat both internal guidance and analyst predictions. Earnings per share (EPS) of 64 cents also came out ahead of consensus estimates by 6 cents.
Subscription revenue drove overall revenue growth, climbing by 18% YOY, thanks to a number of commitments of $10 million or more and roughly 30 commitments of at least $1 million. The company is clearly seeing growing traction across enterprise and public-sector customers alike, which bodes well for its continued top- and bottom-line improvement going forward.
Finally, Elastic has solid cash reserves of close to $1.4 billion and relatively modest debt by comparison. This has enabled it to institute a $500-million share repurchase plan in recent months while continuing to fund significant R&D efforts.
Elastic’s Valuation Discount Could Be the Setup
While Elastic is currently not profitable on a GAAP basis, an analysis of its price-to-sales ratio suggests that it could be undervalued relative to some of its competitors in the AI space. Elastic has a P/S ratio of 5.27, a figure that could fall even further if revenue continues to grow as predicted.
Analysts are somewhat divided but generally bullish on Elastic's prospects, with 17 out of 29 rating ESTC a Buy. Importantly, consensus price targets suggest shares could rise by more than 42% to $105.71 each.
Still, investors should beware the risks of Elastic before entering a position—significant competition risks, volatility as a result of its pricing model, and the potential for GenAI demand to decline. However, Elastic appears poised to overcome these concerns and could emerge as an AI search leader in 2026.
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The article "Why Elastic Could Be the Next AI Winner in 2026" first appeared on MarketBeat.
