From 2019 to 2023, Elastic stocks were a steadfast component of my investment portfolio, offering modest yet reliable gains. However, after careful consideration, I decided to exit my position. Now, after a two-year hiatus, I am considering re-entering the market with this B2B infrastructure software provider, which has rebranded itself as ‚the Search AI Company.‘
Originating from the Netherlands, Elastic had already established itself as a significant player in the European software scene long before its 2018 IPO in the United States.
I had encountered their innovative solutions in my own software initiatives years prior.
Elastic’s market presence and product evolution
For those who may not be familiar, Elastic stands out in the software landscape. The company specializes in Enterprise Search, which focuses on efficient data retrieval within organizations rather than acting as an alternative to Google. Elastic’s technology underpins numerous applications that we use daily, such as the Uber app, which helps users locate nearby vehicles, or Tinder, which matches potential partners. It also plays a vital role in cybersecurity, where it identifies and analyzes threats in real-time.
Core technology and product offerings
At the heart of Elastic’s offerings is Elasticsearch, an exceptionally scalable, real-time search engine capable of handling both structured and unstructured data. Over the years, the company has developed various products built on this foundational technology, addressing critical business needs.
One of Elastic’s key advantages is its capability to integrate multiple solutions within a unified software stack, fostering synergies and enabling clients to consolidate their software vendors. In 2019, Elastic formally entered the security sector, recognizing the demand for tools that detect and analyze cyber threats. Previously, clients had utilized Elastic products for threat hunting, but now these functionalities became a dedicated product offering, transitioning the company from a component supplier to a full-fledged SIEM (Security Information and Event Management) provider.
Expansion into new markets and technologies
In 2020, Elastic expanded into the realm of observability, enhancing its position against established competitors like Splunk, which was later acquired by Cisco in 2024. The company’s strategies have evolved, particularly in 2023, as it pivots towards new applications associated with generative AI. Elastic’s platform has been upgraded to emphasize vector search, a crucial technology for semantic and AI-powered search applications.
Generative AI and future prospects
The marketing narrative surrounding Elastic now highlights its technology’s potential for supporting generative AI projects, which many organizations have embarked upon. Given Elastic’s leading search technology, it is plausible to envision its role in enriching large language models (LLMs) with knowledge derived from proprietary datasets, ensuring rapid accessibility.
The recent launch of the Elastic Native Inference Service, a GPU-accelerated inference-as-a-service solution in Elastic Cloud, further positions the company as a key player in the AI infrastructure space, rather than merely a search engine.
Challenges and leadership changes
Despite these advancements, the road ahead is not assured. Many of these AI initiatives remain in experimental phases, leaning more towards hope than guaranteed profits. In late 2022 and early 2023, Elastic experienced significant leadership changes. Founder Shay Banon stepped down, and Ash Kulkarni was promoted to the role of CEO. I sold my shares in, uncertain about the company’s new Chief Revenue Officer, Mark Dodds, and how his corporate background from Cisco would align with Elastic’s open-source roots.
Looking back, I realize my assessment was flawed. The company has made substantial strides in its sales and marketing approach, operating more efficiently than two years ago. However, my primary concern at the time was the company’s valuation, which had surged due to the hype surrounding generative AI, leading to a temporary 100% increase in stock price, hovering around $115. This surge seemed speculative, given the company was growing at less than 20% annually and still grappling with notable losses.
In a more comprehensive analysis on my English-language Substack (behind a paywall), I delve into the reasons behind my renewed interest in Elastic stocks after a two-year pause.
Disclaimer: The author and/or associated individuals or entities hold shares in Elastic. This article reflects a personal opinion and should not be construed as investment advice. Please refer to legal disclaimers.