Elastic may see slowing growth in Q1, but AI confidence 'strengthens,' analyst says

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Dutch-American software company Elastic N.V. (NYSE:ESTC) is slated to report fiscal first-quarter results on August 31 and while investment firm Monness, Crespi, Hardt believes the results may show slowing growth, its confidence is strengthened by its potential in artificial intelligence.

Analyst Brian White, who has a neutral rating on Elastic (ESTC) shares, said the company is "well positioned" to participate in key tech trends, including AI, after the company's July generative AI event.

"In our view, the event provided Wall Street with a better appreciation for Elastic’s differentiation in generative AI; however, we believe this will be a long journey for most large enterprises," White wrote in an investor note.

The company is boosting its generative AI offerings with the Elasticsearch Relevance Engine that was introduced in May. In July, it went even deeper into the relevance engine, talking about the vector database, support for external transformer models, its own native transformer model and an integrated relevance engine.

Additionally, White noted that while the cloud software is still "choppy," behemoth Amazon (AMZN) said that AWS growth started to stabilize in the second-quarter, with the trends continuing in July.

Looking to the quarter, White is forecasting first-quarter sales of $288M, up 15% year-over-year, slightly above the Wall Street estimate of $284.5M. However, that would represent a 3% sequential increase, below the four-year average of more than 7%, White explained.

White is also expecting earnings of 16 cents per share, above the 11 cent-per-share consensus estimate.

Elastic (ESTC) previously said it expected first-quarter sales to fall within a range of $283M to $286M, with earnings between 10 and 12 cents per share.

Looking to the rest of fiscal 2024, White is expecting second-quarter revenue of $304M, above the $302.1M consensus estimate, while he's forecasting $1.266B in full-year sales.

The company previously said it expects full-year revenue to be within a range of $1.238B and $1.25B, with an operating margin of 9.7% and earnings between 94 cents and $1.06 per share.

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