What Happened?
Shares of search software company Elastic (NYSE:ESTC) jumped 6.3% in the afternoon session after stocks extended their rebound, led by strong gains in the technology sector, as renewed optimism surrounding U.S.–China trade negotiations lifted market sentiment.
Contributing to the bullish sentiment was a standout earnings report from enterprise software leader ServiceNow, which topped Wall Street's expectations on both revenue and earnings. More importantly, the company's remaining performance obligations (RPO), a key forward-looking metric for future revenue, also exceeded forecasts, giving investors confidence that enterprise customers are not pulling back spending amidst uncertain macro.
The optimism was further reinforced by solid results from Texas Instruments and Lam Research. Their performance was especially encouraging for semiconductor stocks, which have been under pressure due to their exposure to global trade tensions. These results suggested that, despite macroeconomic uncertainties, demand in key tech verticals remained resilient.
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What The Market Is Telling Us
Elastic’s shares are quite volatile and have had 18 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was 5 months ago when the stock gained 30.8% on the news that the company reported a "beat and raise" quarter.
Elastic blew past analysts' billings and revenue estimates, primarily driven by strong growth in the cloud business, which rose 25% year on year. Despite some of the challenges recorded in recent quarters, the improved top-line performance suggested that the focus on key enterprise and high-potential mid-market customers was bearing fruit.
On the product front, the company observed signs of accelerating demand for its Generative AI offerings. New customer commitments with GenAI almost doubled in dollar volume compared to the previous quarter, and three of the deals signed were greater than $1 million in annual contract value.
Earnings also exceeded expectations as the sales strength combined with disciplined spending and improved efficiency. As a result, the company was able to provide encouraging guidance as it raised its revenue, profits, and earnings forecast for the full year.
Overall, we think this was a solid "beat-and-raise" quarter. Following the results, Baird upgraded the stock from Neutral to Outperform (Buy), citing "a significant unexpected turnaround in execution, evident in Q2′s results, highlighted by strong commitments, healthy consumption, improved win-rates and GenAI-inflection validating our medium-term/long-term thesis."
Elastic is down 17.5% since the beginning of the year, and at $81.74 per share, it is trading 33.1% below its 52-week high of $122.27 from July 2024. Investors who bought $1,000 worth of Elastic’s shares 5 years ago would now be looking at an investment worth $1,337.
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