Elastic N.V. (ESTC): Among the Most Promising Mid-Cap Stocks According to Hedge Funds

We recently compiled a list of the 10 Most Promising Mid-Cap Stocks According to Hedge Funds. In this article, we are going to take a look at where Elastic N.V. (NYSE:ESTC) stands against the other promising mid-cap stocks.

The S&P 500 May Hit 6,000 in 2024

September closed on a high note, opening a wealth of opportunities for investors. On October 1, Jay Woods, Freedom Capital Markets Chief Global Strategist, appeared in an interview on Yahoo Finance to discuss his predictions for the market.

Woods shares his anticipation for the elections and that the market will take its due course once the elections are over. He believes the technology sector is poised to strengthen as the market rotates from sector to sector. Nvidia, Apple, and Microsoft are currently 15%, 5%, and 8% off their highs and a strong tailwind may be in store for us.

September was stronger than expected and 19 out of 21 times the market hit a high during the month in the past, the market has gone way higher in the following months, or the fourth quarter. Woods reiterated that the setup for a strong comeback is there, especially with elections, and that rotational trade will continue.

Speaking of employment data, Woods suggests that the market has particularly been overreacting to data points and that anything jittery will adversely impact investor confidence. He predicts the unemployment rate to sit at 4.2% and hints that a percentage higher than this will lead to more discussions on bigger rate cuts. He advises that investors need to start blocking out some of these headlines and focus on how stocks have performed in the third quarter of 2024.

The Job Market is Extremely Crucial

On September 30, Matt Stucky, Northwestern Mutual Wealth Management's chief portfolio manager for equities, appeared in an interview on Yahoo Finance to discuss his market thesis.

According to Stucky, the job market is extremely crucial and investors must focus on that. Since the beginning of 2024, employment data has been consistently declining to the point it may hint at a weakening economy.

On the flip side, the third quarter stood out. The third quarter of 2024 saw the market broaden to sectors other than tech. Five out of seven sectors on the S&P 500 experienced tremendous earnings growth, compared to only two in the second quarter of the same year.

As the market broadens, he expects the market to post earnings growth between 9% to 10% this year and 14% to 15% for the next year. Stucky's expectations are rather optimistic and believes the economy will head to a soft landing. He also expects the average investor to be more inclined to stocks that have consistent high margin growth in 2025 and ahead. For this year, however, Stucky believes that the defensive sector, especially utilities, remained the strongest.

While the financial markets may remain uncertain, investors may look for cheaper and less-risky investments. That said, let's look at some of the most promising mid-cap stocks according to hedge funds.

Our Methodology

To find the most promising mid-cap stocks according to hedge funds, we used the Finviz stock screener. We set the market capitalization filter to range between $2 billion and $10 billion. We then examined the hedge fund sentiment of these stocks as of Q2 2024 and picked the most popular ones. The stocks are sorted in ascending order of the number of hedge fund holders as of Q2 2024.

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter's strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

A group of software engineers working in an open, futuristic office.

Elastic N.V. (NYSE:ESTC)

Number of Hedge Fund Holders: 58

Market Capitalization as of October 10, 2024: $8.21 Billion

Elastic N.V. (NYSE:ESTC) is a data analytics company based in the Netherlands that ranks on our list of the most promising mid-cap stocks according to hedge funds. The American-Dutch software company offers generative AI solutions, search solutions, and cyber-security solutions. Some of its customers include Dish, Booking.com, T Mobile, Land Rover, and Cisco.

In the fiscal first quarter of 2025, the company increased total revenue by 18.27% and cloud revenue grew by 30%. The company has over 1,370 customers with a contract value of more than $100,000 per annum. The company is also leveraging artificial intelligence to drive growth for its business. More than 1,300 customers use its cloud platform for generative artificial intelligence. Recently, the company announced the general availability of Google Cloud's Vertex AI on its Open Inference API. Developers can now use Vertex AI's tools to build production applications on the Elasticsearch vector database.

Elastic N.V. (NYSE:ESTC) believes its unique set of product offerings should be made available across the globe. Last month, the company signed an agreement with Arrow Electronics to increase the distribution of its AI-backed security, observability, and search solutions in the United States and Canada. The general availability of these solutions via Arrow will simplify the process for people willing to work with Elastic.

Currently, more than 50% of the Fortune 500 use the company's proprietary platform, Elastic Search AI platform. The company's expansion strategy coupled with its powerful data use cases sets it apart, making it a future market leader.

Artisan Partners' Artisan Global Discovery Fund stated the following regarding Elastic N.V. (NYSE:ESTC) in its Q2 2024 investor letter:

"During the quarter, we initiated new GardenSM positions in Liberty Formula One, Elastic N.V. (NYSE:ESTC) and Onto Innovation. Elastic is a software company that specializes in search and data analysis solutions. Elastic’s search, observability and security solutions are built on the Elastic Search AI Platform, which thousands of companies use, including more than 50% of the Fortune 500. Customers use the software to gain visibility into their data, reduce mean-time-to-resolution and drive actionable outcomes. We believe the company will benefit from the rise of generative artificial intelligence (AI). It provides a differentiated offering due to the combination of a unique pricing model based on consumption, products that handle numerous data types and volumes, and an open architecture environment that offers generative AI development flexibility."

Overall ESTC ranks 2nd among the most promising mid-cap stocks according to hedge funds. While we acknowledge the potential of ESTC as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than ESTC but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

 

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Disclosure: None. This article is originally published at Insider Monkey.