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Why Elastic Could Be the Next AI Winner in 2026
Reported by Nathan Reiff. Originally Published: 1/30/2026.
In Brief
- Elastic N.V. shares are down 37% in the last year, presenting an opportunity to buy a key player in the search AI space at a potential discount.
- Elastic's updated Cloud Serverless product and Agent Builder tools allow for new degrees of scaling and efficiency and should appeal to a broad customer base of enterprise and public-sector clients, continuing to drive mid-teens revenue growth.
- The company's cash position is strong and has allowed it to institute a $500-million share repurchase plan.
Elastic N.V. (NYSE: ESTC) is best known for search and analytics tools that enable AI-powered data organization. Its Elasticsearch product performs full-text searches across petabytes of structured and unstructured data — a capability essential to infrastructure monitoring, security analytics, and many other use cases.
Despite its relevance to the fast-growing AI space, Elastic's share price slid sharply over the past year, falling nearly 37%. That decline, however, masks several reasons to be bullish on ESTC. The company has recently rolled out key product upgrades and new tools to strengthen its software-as-a-service model and to help developers build advanced AI agents.
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Many of Elastic's fundamentals also remain solid, which should help the company compete in the AI market. After a disappointing year for the stock, ESTC entered 2026 showing signs of being undervalued.
Elastic's Agent Builder Expands Its Push Into AI Agents
In mid-January, Elastic announced an upgraded Elastic Cloud Serverless — an auto-scaling Elasticsearch service available on Amazon Web Services (NASDAQ: AMZN). The upgrade can deliver up to 50% higher indexing throughput and lower search latency.
Scaling is one of the biggest challenges for a service that handles massive datasets while promising near-real-time results. Elastic Cloud Serverless addresses that by automatically adjusting capacity for different use cases, freeing customers from infrastructure management.
Perhaps the more notable development is Elastic's Agent Builder, also launched in January. Agent Builder is a suite of tools that simplifies creating secure, reliable AI agents by integrating search and analytics capabilities with developer-friendly workflows. It is available within Elastic Cloud Serverless and is a natural extension of the company's search products.
Both updates should drive interest in Elastic Cloud Serverless. The product's pay-as-you-go pricing model also makes it attractive to customers with varying usage levels.
Elastic's Fundamentals Stay Strong Despite the Recent Sell-Off
Elastic's second-quarter fiscal 2026 results (period ended Oct. 31, 2025) underscore why the company remains well positioned. Revenue was $423 million, up 16% year-over-year, beating both internal guidance and analyst estimates. EPS of $0.64 also topped consensus by $0.06.
Subscription revenue led the growth, rising 18% year-over-year, supported by several large contract commitments — including some exceeding $10 million — and roughly 30 commitments of at least $1 million. The company is gaining traction across enterprise and public-sector customers, which bodes well for continued top- and bottom-line improvement.
Elastic also has about $1.4 billion in cash and relatively modest debt. That balance sheet strength has allowed the company to launch a $500 million share repurchase program while continuing to invest in R&D.
Elastic's Valuation Discount Could Be the Setup
Although Elastic is not currently GAAP-profitable, its price-to-sales (P/S) ratio of 5.27 suggests it may be undervalued relative to some peers in the AI space. That ratio could compress further if revenue growth accelerates as expected.
Analysts are somewhat divided but generally constructive: 17 of 29 rate ESTC a Buy. Consensus price targets imply shares could rise more than 42% to about $105.71.
Investors should weigh the risks — intense competition, potential revenue volatility tied to its pricing model, and the possibility of cooling GenAI demand. Still, Elastic appears positioned to address these challenges and could emerge as an AI search leader in 2026.
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