The stock market is currently experiencing a sell-off, significantly impacting the technology sector. As of now, the Nasdaq Composite, which is heavily focused on technology, has decreased by 11% from its record high, while the more diversified S&P 500 index has fallen by 7%.
Historically, the U.S. stock market tends to reach new peaks over time, suggesting that market corrections can present excellent buying opportunities. Investors seeking a discounted artificial intelligence (AI) stock might consider Elastic N.V. (ESTC), which is trading at an appealing valuation given its recent strong financial performance.
Elastic’s stock has declined from its 2025 peak, remaining 46% below its all-time high set during the tech boom in 2021. Analysts suggest that investors may regret not purchasing the dip when looking back on this period in the future.
Elastic addresses substantial data challenges through its AI-powered search solutions. The company projects that by 2025, approximately 480 exabytes of data will be generated daily. This increase in digital information is a result of more businesses moving their operations online, leading to the creation of new data from every employee, customer, and transaction.
Elastic’s product, Elasticsearch, functions as a search engine for internal organizational data, allowing employees to quickly find information with a simple query. It also enhances e-commerce websites by enabling customers to locate products faster through search features.
The Elasticsearch Relevance Engine (ESRE) incorporates AI into the standard Elasticsearch tool, improving its ability to understand natural language and semantics, which enhances the search experience. This functionality assists users in efficiently finding products and tools on e-commerce platforms, minimizing the effort needed to gather information.
On the financial front, Elastic reported record revenue of $382 million in its fiscal 2025 third quarter, a 17% increase from the previous year. Elastic Cloud contributed $180 million to this total, with a growth rate of 26%. Elastic Cloud is gaining traction as it allows Elastic to manage server infrastructure, software updates, and security for customers, enhancing the user experience.
Despite a GAAP-based operating loss of $4.6 million in the third quarter, which represents an 82% decrease from the previous year’s $26.6 million loss, Elastic achieved an adjusted operating profit of $64 million. This led to a $67.1 million net profit, a 78% increase from the prior year. Consistent profitability may enable Elastic to build a more resilient business and provide steady returns for investors.
Although Elastic has not yet achieved consistent GAAP profitability, its stock appears valuable based on its price-to-sales ratio (P/S), which is currently 7.2. This is a 45% discount compared to its long-term average of 13.1 since going public in 2018.
Several Wall Street analysts view Elastic favorably; of the 29 analysts tracked by The Wall Street Journal, 19 have rated it as a buy, two as overweight (bullish), and eight as hold. The average price target is $136.26, indicating a potential 40% upside over the next 12 to 18 months, with a high target of $160 suggesting a 65% increase.
Given the current stock market fluctuations, investors interested in the AI sector might consider adding Elastic to their portfolios.
