Artificial intelligence (AI) stocks like Nvidia and Microsoft have been the go-to choices for investors looking to profit from this fast-growing technology. But the AI industry is rapidly expanding, and opportunities are emerging beyond the most popular names.

Elastic N.V. (NYSE: ESTC) developed a portfolio of AI software tools that empower businesses with valuable use cases for their data, whether it's helping employees access internal information instantly or creating new shopping experiences for customers. Those tools are attracting a growing number of high-spending enterprises, which is driving momentum in Elastic's revenue and stock price.

The company's stock is trading 40% below its all-time high that was set during the tech frenzy in 2021, but it's on the path to recovery. The Wall Street Journal tracks 25 analysts covering the stock, and the majority have given it the highest-possible buy rating. Here's why investors might want to follow the Street's lead.

Bringing AI-powered search to businesses of all sizes

In the modern economy, businesses have no choice but to digitize their operations and sales channels or risk falling behind their competitors. That means shifting every valuable asset, document, and customer datapoint into cyberspace, where accessibility becomes a challenge without the right tools.

Elasticsearch software sits on top of an organization's internal data. It allows employees to run a simple search query to find the information they need, rather than sifting through thousands of documents or contacting senior management for help. For example, if an employee is unfamiliar with company policies surrounding vacation leave, Elasticsearch can pull the information for them instantly.

The Elasticsearch Relevance Engine (ESRE) allows businesses to build generative AI into the Elasticsearch experience, which can refine the quality of each response by better understanding natural language. Simply put, ESRE can help the company deliver better answers to each query, even if those queries are simpler or contain fewer words.

Elasticsearch can also be used to power the search feature on a business's website, which helps customers find products more quickly. However, ESRE is elevating that experience with AI, too. Let's say a customer wants to install a fence in their backyard. An AI-powered search engine will allow them to enter a query like, "What products and tools do I need to build a wooden fence that is 100 feet long and six feet high in California?"

An AI engine with good data will present everything the customer needs -- including relevant regulations -- so all they have to do is click "buy." It saves countless hours otherwise spent trawling the internet for everything they need, and that's a level of convenience consumers will soon expect. Therefore, businesses that don't use tools like Elasticsearch could be left behind.

Accelerating revenue growth, driven by high-spending customers

Elastic's fiscal year 2024 wrapped up on April 30. In the fourth and final quarter, the company generated $335 million in revenue, a 20% increase from the year-ago period. It was the fastest pace of growth in more than a year and marked the second-consecutive quarter of acceleration.

At the end of Q4, the company had 1,330 customers with an annual contract value of at least $100,000. It was an increase of 60 customers from just three months earlier, which was the biggest quarterly addition in all of fiscal 2024. Plus, the company reported a net revenue expansion rate of 110%, which meant existing customers increased their trailing-12-month spending 10% in Q4, compared to the year-ago period.

The results were especially impressive when you consider Elastic has carefully managed its costs to improve its bottom line. The company delivered net income of $61.7 million for the year, a big swing from the $236.2 million net loss in fiscal 2023. It did benefit from a one-time tax benefit of $184.4 million, but even if you exclude that, its net loss still would have been almost 50% smaller in fiscal 2024.

On a non-GAAP basis, which strips out one-off and non-cash expenses like stock-based compensation, Elastic's net income soared 490% to $123.5 million. The point is, the company is finding a way to deliver accelerating revenue growth while managing its expenses to make substantial progress at the bottom line. It means the company doesn't have to burn truckloads of cash to attract new customers and expand its business -- a great sign for investors.

Wall Street is very bullish on Elastic stock

Elastic stock has soared 64% over the last 12 months but remains 40% below its all-time high from 2021. Oceans of pandemic-related stimulus catapulted many tech stocks to unrealistic valuations back then, so the subsequent declines aren't necessarily an indication that something is wrong.

However, the company's stock is quite cheap relative to many of its peers in the AI space. Based on its $1.26 billion in fiscal 2024 revenue and market cap of $11.4 billion, its stock trades at a price-to-sales (P/S) ratio of 8.9. Here's how it measures up compared to other popular AI stocks:

Plus, out of the 25 analysts tracked by The Wall Street Journal, 16 have given Elastic stock a buy rating, while nine recommend holding. None suggest selling.

The consensus price target of $128.56 implies about 15% upside over the next 12 to 18 months. Elastic could move much higher over the long term and potentially even challenge its best-ever level near $190, based on its attractive valuation and growing demand for AI software.

Investors might want to swoop in now and buy Elastic stock for the long term.

Should you invest $1,000 in Elastic right now?

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Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Elastic, Microsoft, and Nvidia. The Motley Fool recommends C3.ai and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

1 Unstoppable Artificial Intelligence (AI) Stock Down 40% to Buy Hand Over Fist, According to Wall Street was originally published by The Motley Fool