What Happened?
Shares of search AI platform provider Elastic (NYSE: ESTC) fell 15.7% in the afternoon session after the company reported fourth-quarter results that topped Wall Street estimates for revenue and profit, but its outlook for a key growth metric disappointed investors.
The search AI company posted revenue of $449.9 million, up 17.7% year-over-year, and an adjusted profit of $0.73 per share, both beating expectations. Management also raised its full-year earnings guidance. However, the positive results were overshadowed by the company's forecast for the upcoming first quarter. While headline revenue guidance was slightly ahead of consensus, Elastic guided for its constant-currency subscription revenue to grow by only 15% year-on-year. This figure, coupled with a forecasted slowdown in overall revenue growth to about 14.8%, signaled a deceleration that concerned the market, prompting a sell-off despite the otherwise strong quarterly performance.
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What Is The Market Telling Us
Elastic’s shares are very volatile and have had 27 moves greater than 5% over the last year. But moves this big are rare even for Elastic and indicate this news significantly impacted the market’s perception of the business.
The previous big move we wrote about was about 21 hours ago when the stock gained 5.8% on the news that Nvidia CEO Jensen Huang dismissed fears that artificial intelligence would cannibalize the enterprise software sector. High-growth names like Zscaler (ZS) and CrowdStrike (CRWD) saw significant rebounds as investors reassessed the "AI headwind" narrative that had previously weighed on valuations. Huang's comments acted as a powerful catalyst, signaling that the intersection of generative AI and established software platforms is a symbiotic relationship rather than a zero-sum game. During a CNBC appearance, Huang argued that the market "got it wrong," specifically defending the indispensable role of platforms like ServiceNow. He emphasized that these companies are uniquely positioned to deploy fine-tuned AI agents that utilize their existing specialized tools.
Elastic is down 28.3% since the beginning of the year, and at $52.05 per share, it is trading 55.3% below its 52-week high of $116.36 from February 2025. Investors who bought $1,000 worth of Elastic’s shares 5 years ago would now be looking at an investment worth $359.35.
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