Enterprise software company Elastic (ESTC 3.59%) reported financial results for its fiscal second quarter of 2025 last week and the report was met with enthusiasm from investors. The stock gained over 20% last week primarily thanks to its Q2 report.
Elastic stock is on the move again today thanks to some commentary from Wedbush analyst Dan Ives. According to The Fly, Ives basically believes that the moment has come for artificial intelligence (AI) to catalyze growth for software companies, including Elastic. He (as well as other prominent analysts) is consequently recommending that investors buy Elastic stock, sending shares higher.
As of 11:30 a.m. ET, Elastic stock was up about 4%, but it had been up nearly 8% earlier in the day.
The AI tailwind is starting to gust
In a nutshell, Elastic allows its customers to search their data. When it comes to search, generative AI can be helpful and that’s turning out to be the case with Elastic. In the Q2 earnings call, CEO Ash Kulkarni said, “In Q2, we saw strong customer commitments with key wins across all of our solution areas, especially in search powered by generative AI.”
The proof is in the pudding for Elastic. The company had some key customer wins in Q2, spending increased, and its remaining performance obligations jumped by 13% year over year to nearly $1.3 billion. It seems that Ives and others are right to note that AI is providing a tailwind for Elastic right now.
Enterprise customers more willing to spend money
For its fiscal 2025 (which is already half over), Elastic is expecting 15% top-line growth. It’s worth noting that this is slower than its growth of 19% in its fiscal 2024. And its guidance is lower than its guidance when the fiscal year began.
It may seem contradictory for investors to celebrate financial results for Elastic when its growth is slowing and its guidance was revised down earlier this year. But the context here is that enterprise software companies were struggling early in the year as customers were reluctant to commit to spending money. But in recent months, the chill has started to thaw, giving investors excitement about Elastic and others heading into next year.
Jon Quast has no position in any of the stocks mentioned. The Motley Fool recommends Elastic. The Motley Fool has a disclosure policy.
