ESTC Q1 2026: AI Cloud Customers Surge Past 2,200, Lifting Spend
- AI-driven growth momentum: Elastic is benefiting from a strong surge in Gen AI adoption—with over 2,200 Elastic Cloud customers using its platform for Gen AI use cases and many committing significant annual spend—suggesting a robust, scalable consumption model that can drive long‑term revenue expansion.
- Robust security business performance: The company is gaining ground in security, with one‑third of new and expansion wins coming from competitive displacements and innovations like its AI SOC engine, underscoring its ability to disrupt incumbent SIEM solutions and capture market share.
- Durable pricing power: Regular price increases—approximately 5% across cloud and self‑managed offerings—are elevating the revenue baseline and providing a durable benefit year‑over‑year, which enhances the company’s margin and supports sustainable growth.
- Uncertain sustainability of consumption-driven growth: The call highlighted that while AI-related consumption has accelerated, the consumption model inherently remains subject to quarter-over-quarter unpredictability. In addition, the migration journey for certain segments (security and self-managed) can be slower to convert into sustained revenue, which could weigh on future growth.
- Lengthy and uncertain sales cycles in security displacements: Several speakers noted that competitive displacements in security deals can take several quarters due to complex migration and engineering requirements. This slower conversion process may delay revenue realization and exposes the company to execution risks during transitions.
- Reliance on periodic price increases to boost the revenue floor: The discussion indicated that benefits from price increases tend to provide only a baseline lift on a year-over-year basis rather than driving strong quarter-over-quarter growth. If underlying consumption growth slows or competitive pressures drive increased discounting, the positive impact of these price adjustments might be muted.
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Generative AI adoption | Q2, Q3, and Q4 earnings calls consistently underscored rising customer commitment, expanding use cases, and strong growth – for example, 1,550–1,750+ customers with increasing million‐dollar deals | Q1 2026 highlighted further acceleration with 2,200+ customers, more high-value ACV wins, and long‐term tailwind | Increased adoption and strong momentum, with enhanced metrics and a long-term growth narrative. |
Security business performance | Earlier calls (Q2, Q3, Q4) reported robust customer wins, AI-led innovations, and displacement deals with some challenges in longer sales cycles and complex competitive transitions | Q1 2026 focused on strong performance, significant AI integration, and competitive displacements, while acknowledging long sales cycle challenges | Stable and competitive with a focus on AI-driven capabilities; enduring challenges around long sales cycles persist. |
Durable pricing power | Not mentioned in Q2, Q3, or Q4 earnings calls [N/A] | Q1 2026 emphasized periodic price increases (5%) as a strategic tool to build a durable revenue baseline | New topic introduced in Q1 with a positive sentiment highlighting sustainable revenue growth through strategic price adjustments. |
Sales execution and pipeline conversion | Q2 highlighted Q1 commitment shortfalls and flat RPO growth ; Q3 explained recovery via improved segmentation and pipeline focus ; Q4 reinforced solid sales execution and improved pipeline visibility | Q1 2026 reported strong sales execution and healthy pipeline conversion with robust sales-led subscription growth | Marked improvement from earlier shortfalls; steady recovery and enhanced pipeline management underscore strong sales momentum. |
Cloud revenue growth volatility | Q2, Q3, and Q4 earnings calls discussed fluctuating consumption patterns, flat month-to-month self-service revenue, and seasonal or leap-year impacts on cloud revenue | Q1 2026 did not emphasize volatility, instead reporting strong cloud performance without highlighting consumption headwinds | Less emphasized in Q1, suggesting that prior concerns have stabilized or become less prominent. |
Strategic partnership momentum with hyperscalers | Q4 2025 featured growing momentum through strategic alliances with AWS, Microsoft, NVIDIA, and Google Cloud, positioning Elastic as a preferred third‐party vector provider | Q1 2026 contains no mention of these partnerships [N/A] | Previously a highlighted growth lever in Q4; absence in Q1 may indicate a deprioritization or integration into broader strategies. |
Macro uncertainty and public sector headwinds | Q3 and Q4 calls noted macro challenges and public sector pressures (e.g., elongated U.S. federal civilian sales cycles, dynamic macro conditions impacting guidance) | Q1 2026 acknowledged a complex macro environment but noted stabilization in the U.S. public sector, which supported raised guidance | Headwinds persist but improved public sector stabilization and raised fiscal guidance suggest moderated macro concerns compared to earlier periods. |
Go-to-market transformation and customer segmentation | Q2, Q3, and Q4 emphasized sales segmentation transformations, renewed focus on enterprise and high-potential mid-market customers, and meaningful territory and capacity changes | Q1 2026 reiterated that transformation efforts are yielding strong enterprise and mid-market results, supported by improved execution | Consistent focus with positive progress; effective segmentation continues to drive enhanced sales execution and customer targeting. |
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Price Impact
Q: How are price increases boosting growth?
A: Management explained that a roughly 5% price increase across both cloud and self-managed products sets a durable revenue floor, ultimately improving year-over-year growth while core consumption remains strong. -
Security Momentum
Q: What drove security displacements?
A: They highlighted that customers are shifting from legacy SIEM solutions to an integrated, AI-driven security platform, with competitive displacements building over several quarters to drive momentum. -
AI Consumption Uplift
Q: How does AI boost customer spend?
A: Management observed that as customers deploy more compute-intensive AI workloads, their consumption rises, leading to notably higher spend and stronger usage trends. -
Growth Mix
Q: How are growth drivers balanced?
A: The call noted broad-based growth, with Gen AI powering search while observability and security segments also contribute solidly to revenue expansion. -
Net Expansion Predictability
Q: Will net expansion remain steady?
A: Leaders expressed confidence in stable, robust net expansion from existing customers, expecting this trend to persist throughout the year. -
Go-to-Market Efficiency
Q: What underpins improved sales execution?
A: Enhanced territory alignment and focused segmentation have driven superior sales productivity, bolstering durable subscription revenue growth. -
Serverless Adoption
Q: What’s the status of serverless offerings?
A: Early feedback has been encouraging as serverless has reached general availability on major hyperscalers, with plans to expand capacity further this year. -
Federal Segment Outlook
Q: How is the public sector performing?
A: Management noted that the U.S. Public sector has stabilized, with modest activity expected in Q2 after prior volatility.
Research analysts covering Elastic.