From 2019 until early 2023, Elastic stocks represented a consistent presence in my investment portfolio. After experiencing modest profits, I made the decision to exit my position, and I will elaborate on the reasons for that choice later. Now, after a two-year hiatus, I am embarking on the journey to reinvest in this notable B2B infrastructure software provider, which has adeptly branded itself as the ‚Search AI Company.‘
Originally emerging from the Netherlands, Elastic had already established itself as a leading European software firm prior to its 2018 IPO in the United States.
My initial encounters with Elastic trace back to my own software projects, where I recognized its potential long before its public listing.
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Elastic’s market presence and evolution
For those unfamiliar with the company, a brief recap is in order. Long before going public, Elastic was recognized as a top-tier provider of enterprise search solutions. This technology facilitates efficient data retrieval within organizations, distinctly separate from consumer-focused search engines like Google.
Many of us have unknowingly leveraged Elastic’s technology for years. Applications such as Uber utilize it to locate nearby vehicles, while Tinder employs it to match potential partners. Moreover, cybersecurity services benefit from Elastic’s capabilities to identify and analyze threats, showcasing its ability to process vast datasets in milliseconds.
The core technology: Elasticsearch
At the heart of Elastic’s offerings is Elasticsearch, a scalable real-time search engine designed to accommodate various data types, including both structured and unstructured formats. Over the years, Elastic has expanded its product range, leveraging this foundational technology to create solutions that address critical business needs.
In 2019, Elastic made a significant leap into the security market. Although clients had previously utilized its products for threat detection and analysis, the company formalized this offering, transitioning from a component supplier to a provider of SIEM (Security Information and Event Management) solutions.
Expansion into new territories
In addition to security, Elastic ventured into the realm of observability in 2020, enhancing its capabilities to monitor distributed systems. This move positioned it as a direct competitor to Splunk, a market leader that was later acquired by Cisco in 2024.
As of 2023, Elastic is increasingly focusing on innovative applications related to generative AI. The company has enhanced its platform to prioritize vector search, a crucial technology for semantically enriched and AI-driven search functionalities.
AI-driven transformations
Elastic’s marketing strategy emphasizes the relevance of its technology in facilitating generative AI initiatives that numerous companies are currently exploring. This assertion is not unfounded, as Elastic’s leading search technology could play a vital role in enriching large language models (LLMs) with proprietary data, making them searchable within milliseconds.
The recent introduction of the Elastic Native Inference Service, a GPU-accelerated inference-as-a-service offering within Elastic Cloud, marks a strategic shift for the company. It now positions itself as a comprehensive AI infrastructure provider rather than merely a search engine.
Challenges and reflections on the past
Despite these advancements, the long-term success of these AI applications remains uncertain. Many projects are still in their experimental phases and currently represent more of a hopeful outlook than a solid revenue stream for Elastic.
Reflecting on my past engagement with Elastic, I had two primary considerations that influenced my decision to exit in 2023. Firstly, the company underwent a complete leadership overhaul, with founder Shay Banon stepping down and Ash Kulkarni taking over as CEO. My concerns regarding the new Chief Revenue Officer, Mark Dodds, who transitioned from a corporate background at Cisco, led me to doubt his fit for the company.
At the time, I perceived a significant cultural clash between the former open-source ethos of Elastic and the new enterprise sales-driven approach. However, I now realize that this assessment was misguided. Elastic has significantly improved its sales and marketing strategies, operating with greater efficiency than it did two years prior.
The pivotal reason for my exit, however, lay in the valuation of Elastic stock at that time. Like many other software companies, Elastic quickly pivoted towards generative AI, resulting in a temporary surge of 100% in its stock price to roughly $115. This spike was largely speculative, as the company was still grappling with a growth rate of less than 20% per year and showing substantial losses.
For a deeper analysis of why I am choosing to reinvest in Elastic after a two-year interval, please refer to my detailed post on my English-language Substack.
