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Is ESTC a good stock to buy? We came across a bullish thesis on Elastic N.V. on High Growth Investing’s Substack by Stefan Waldhauser. In this article, we will summarize the bulls’ thesis on ESTC. Elastic N.V.'s share was trading at $48.39 as of April 21st. ESTC’s trailing and forward P/E were 125.08 and 17.06 respectively according to Yahoo Finance.
Elastic N.V., a search artificial intelligence (AI) company, provides software platforms to run in hybrid, public or private clouds, and multi-cloud environments in the United States and internationally. ESTC remains in the “penalty box” despite delivering another fundamentally solid quarter in Q3 FY26, as the market continues to punish software names under the “AI eats software” narrative and compress valuations across the sector.
Since the investment was initiated, Elastic shares have declined over 35% and now trade just above $50, near the lows seen in 2020 and 2023, even though the underlying business has scaled meaningfully from roughly $400 million revenue in FY20 to an expected $1.75 billion in FY26, alongside a shift from cash burn to ~15–20% free cash flow margins over time.
In Q3 FY26, Elastic posted $450 million in revenue (+18% YoY), with subscription revenue up 19% and sales-led subscription growing 21%, highlighting accelerating enterprise adoption. The business is increasingly sales-driven, with 83% of revenue now managed through the sales organization and a net expansion rate of 112%, reinforcing durable customer retention and upsell strength. Profitability continues to improve as well, with GAAP operating income turning slightly positive at $1 million and non-GAAP operating income rising to $83 million (18.6% margin), underscoring a scalable SaaS model.
The key overhang remains cash flow volatility, as adjusted free cash flow fell to $54 million from $99 million a year earlier, driven by higher deferred acquisition costs and a $50 million decline in deferred revenue, even as RPO increased to over $1.65 billion, indicating strong forward demand visibility. Guidance for FY26 remains cautious at ~$1.73 billion revenue and 16.3% non-GAAP operating margin, limiting near-term re-rating momentum.
However, the structural bull case remains intact: Elastic is increasingly positioned as a critical AI infrastructure layer for search and contextual data retrieval, where “context” becomes more valuable than raw model capability. As cash flow stabilizes and AI skepticism normalizes, Elastic remains well positioned for a meaningful rerating from depressed levels.
Previously we covered a bullish thesis on Datadog (DDOG) by @bigbullcap on X (Twitter) in May 2025, which highlighted the multi-product observability platform, diversified ARR streams, and strong retention dynamics. DDOG’s stock price has depreciated by approximately 12.95% since our coverage. Stefan Waldhauser shares a similar view but emphasizes Elastic’s AI-driven search infrastructure positioning versus Datadog’s observability-led multi-product ARR expansion and differing cash flow trajectory.
Elastic N.V. is not on our list of the 40 Most Popular Stocks Among Hedge Funds. As per our database, 55 hedge fund portfolios held ESTC at the end of the fourth quarter which was 52 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.