AI‑Driven Growth

Morgan Stanley maintained its Equal Weight rating on Elastic (ESTC) and reduced its price target from $80 to $73, citing strong bookings growth and growing AI adoption. Elastic's recent quarter was notable for bookings outpacing revenue growth, with current remaining performance obligations rising 20% to $1.2 billion and total RPO climbing 27% to $1.98 billion. The company reported a record number of deals worth over $1 million and saw the number of customers using its AI capabilities increase to over 1,720. However, Morgan Stanley expects investors will want proof that AI demand is translating into deployed workloads and recognized revenue before assigning a higher valuation. Morgan Stanley noted that bookings strength was broad‑based across search, security, and observability, but cautioned that the company's backlog is growing faster than revenue. The firm believes Elastic needs to demonstrate how quickly its commitments convert into sales. Despite these concerns, Elastic's strong customer demand and AI adoption suggest a durable growth outlook. The update to Morgan Stanley's rating on ESTC highlights the importance of AI adoption in driving revenue growth for software companies like Elastic. As investors become increasingly focused on companies that can leverage AI to drive growth, Elastic's performance will be closely watched to see if it can maintain its momentum and meet expectations.