The stock market has been in the middle of a sell-off, and the technology industry is bearing the brunt of the downside. At the time of this writing, the tech-heavy Nasdaq Composite was down 11% from its all-time high, whereas the more diversified S&P 500Â index has declined by 7%.
Throughout history, the U.S. stock market has always climbed to new highs over time, which means corrections can be fantastic buying opportunities. Investors looking for an artificial intelligence (AI) stock at a discount might want to consider Elastic N.V. (ESTC -3.66%). It trades at an attractive valuation, especially in light of the company’s strong financial results of late.
Elastic stock is down from its 2025 peak, and it’s still trading 46% below its record high, which was set during the tech frenzy in 2021. Here’s why investors might wish they had bought the dip when they look back on this moment in a few years’ time.
Solving big data challenges with AI-powered search
Elastic estimates around 480 exabytes of data will be generated every single day in 2025. For context, one exabyte is equal to 1 million terabytes, so we’re talking about mountains of digital information. It’s a consequence of more businesses shifting their operations online, where every employee, customer, and transaction creates new data.
Elastic has created a tool called Elasticsearch, which is like a search engine for an organization’s internal data. Rather than sifting through thousands of documents to find a piece of information, an employee can simply enter a query into Elasticsearch, which should find it instantly. It’s also a powerful addition to a company’s e-commerce website, because it allows customers to find the products they need more quickly via the search function.
The Elasticsearch Relevance Engine (ESRE) introduces AI into the traditional Elasticsearch tool. This means it’s far better at understanding natural language, so it can produce accurate information even if employees or customers are struggling to convey exactly what they are trying to find. Plus, it understands semantics — the meaning of words and phrases — adding a new dimension to the search experience.
This can be really powerful. If you were about to embark on a do-it-yourself project in your backyard, you would normally run several Google searches to find products and instructions. However, if your local hardware store’s website uses ESRE, you can simply tell it what you’re building and provide the measurements, and it will present you with all of the products and tools you need to complete it.
From there, you can instantly create a complete shopping cart and check out with a few clicks, saving you a significant amount of time — almost no Googling required.
Image source: Getty Images.
Strong revenue growth and soaring profits
Elastic generated a record $382 million in total revenue during its fiscal 2025 third quarter (ended Jan. 31), a 17% increase from the year-ago period. Elastic Cloud contributed $180 million to that total figure, and it grew at an even faster rate of 26%.
Using Elastic Cloud to deploy tools like Elasticsearch is becoming a popular choice compared to the on-premise or self-managed version, because Elastic hosts the software on the customer’s behalf. This means the company handles all server infrastructure, software updates, backups, and security, which creates a seamless experience for the end user.
Elastic’s strong third-quarter results are even more impressive when you consider the company carefully managed its expenses to improve its profitability. It still generated a small operating loss of $4.6 million on the basis of generally accepted accounting principles (GAAP), but that was an 82% reduction from the $26.6 million operating loss from the year-ago period.
On an adjusted (non-GAAP) basis, which strips out one-off and noncash expenses, Elastic actually generated an operating profit of $64 million. That translated to a $67.1 million profit at the bottom line, a 78% increase from the prior-year quarter.
Achieving consistent profitability will help Elastic create a more sustainable business for the long term, which should translate into steady returns for investors with less volatility.
Elastic stock looks like a good value at the moment
Since Elastic isn’t consistently profitable on a GAAP basis yet, we can’t use the traditional price-to-earnings ratio (P/E) to value its stock. However, we can use the price-to-sales ratio (P/S) instead, which divides a company’s market capitalization by its trailing-12-month revenue.
Elastic stock currently trades at a P/S of 7.2, a 45% discount to its long-term average of 13.1 dating back to when the company went public in 2018:
ESTC PS Ratio data by YCharts.
Valuation might also be one reason Wall Street is bullish on Elastic’s prospects. The Wall Street Journal tracks 29 analysts who cover the stock, and 19 have assigned it the highest-possible buy rating. Two others are in the overweight (bullish) camp, and eight recommend holding. Not a single analyst recommends selling.
Plus, their average price target is $136.26, which implies a potential upside of 40% over the next 12 to 18 months. The Street-high target of $160 suggests the stock might even soar by 65% instead.
As a result, investors who are looking for an opportunity in the AI space amid the recent stock market turbulence might want to consider adding Elastic to their portfolio.
