We recently published a list of 10 Worst 5G Stocks To Buy According to Short Sellers. In this article, we are going to take a look at where Elastic N.V. (NYSE:ESTC) stands against other worst 5G stocks to buy according to short sellers.
As we move a quarter of the way into the 21st century, the world is paving the way for new technologies to make human lives easier and more advanced. Out of those, 5G and artificial intelligence (AI) are two of the century’s most important innovations.
We discussed the correlation between the two of them in our article about the best 5g stocks to buy according to short sellers. Here is an excerpt from the article:
“In a CNBC interview at the Mobile World Congress Shanghai on June 26, director-general of the GSM Association, Mats Granryd highlighted the deep connection between 5G and AI and suggested that their mutual rise is not accidental. He said that “AI feeds off 5G and 5G feeds off AI.” This is especially evident in China, where the development of standalone 5G networks is well advanced and discussions are already shifting toward 5G Advanced (5.5G). While some countries lag, like the Philippines, Mats pointed out that this dynamic between 5G and AI is most prominent in regions with widespread 5G coverage…
…Mats believes that 5G will follow a similar path to become a common platform worldwide, which will also extend to AI. While some regions may advance faster than others initially, he showed confidence in the fact that everyone will eventually catch up and benefit from the integration of AI with 5G.”
The Outlook For 5G Industry
We also previously discussed the Market Research Future report which expects the 5G market to reach $229.41 billion by 2032, growing at a compound annual growth rate (CAGR) of 40.60% between 2024 and 2032.
According to a 5G Americas report, the wireless telecommunications sector continued to expand in the first quarter of 2024, driven by the widespread growth of 5G technology. Global 5G connections reached nearly two billion. North America’s leading adoption accounted for 32% of all 5G connections and added 22 million new connections, totaling 220 million. Latin America also experienced growth, with 8 million new LTE connections and 9 million 5G connections.
For the future, the 5G Americas forecast suggests that global 5G connections will reach 7.7 billion by 2028, with North America projected to have 700 million. The Internet of Things (IoT) is expected to further drive 5G adoption, with global IoT subscriptions expected to grow from 3.3 billion to 5 billion by 2028.
The Evolution of Mobile Networks with 5G Advanced and 6G
According to a March report by CNBC, telecom executives discussed plans for 5.5G or 5G Advanced at the Mobile World Congress in Barcelona, even as 5G is still being rolled out. The new stage of mobile technology is expected to enable advanced applications like mixed reality headsets, autonomous vehicles, and smart factories, which were initially promised with 5G.
The 5.5G technology will improve network capabilities by increasing data speeds and enhancing connectivity. It will also use AI to optimize networks and reduce power consumption. Huawei expects that 5.5G will begin commercial deployments by 2024, with the potential for much faster download speeds. The focus now is on improving 5G’s commercial relevance and paving the way for 6G in the future.
Moreover, a team of scientists, led by Professor Withawat Withayachumnankul from the University of Adelaide, has created a new polarisation multiplexer that could greatly improve 6G communications. The device works at terahertz frequencies, which are much faster than current wireless systems. It can send multiple data streams at the same time over the same frequency, effectively doubling the data capacity.
The multiplexer is built on a silicon base and has been successfully tested and reduces data loss compared to existing technology. The innovation could lead to faster, more reliable wireless networks and would benefit areas like telecommunications, video streaming, and future 6G mobile networks. The team expects it to drive more research and become available in commercial products within the next decade.
Our Methodology
To select the 10 worst 5G stocks according to short sellers, we used ETFs and screeners to identify over 40 stocks that have significant involvement in the 5G industry. Next, we narrowed our list to 10 stocks with the highest short interest. Finally, these stocks were ranked in ascending order of their short interest.
We also added the hedge fund sentiment around each stock which was taken from Insider Monkey’s database of over 900 elite hedge funds. 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)
Short Interest as % of Shares Outstanding: 4.33%
Number of Hedge Fund Holders: 58
Elastic N.V. (NYSE:ESTC), known for its expertise in search and artificial intelligence, offers a range of hosted and managed solutions that operate across hybrid, public, private, and multi-cloud environments, both in the U.S. and globally.
The company has gained recognition in the 5G sector due to its data analytics and search capabilities, which are essential for managing the extensive data generated by 5G networks. One of its flagship products is the Elastic Stack, which allows organizations to ingest, store, and analyze large volumes of structured and unstructured data in real time, a feature crucial for handling the complexities of 5G data environments.
The company’s Elastic Security platform is another significant offering, integrating functions such as Security Information and Event Management (SIEM), Security Orchestration, Automation, and Response (SOAR), and endpoint protection.
The comprehensive approach provides organizations with end-to-end visibility into their network operations, which is vital for detecting vulnerabilities and responding to threats promptly, especially within the dynamic context of 5G networks.
In 2023, it formed a partnership with Wilab to improve network observability and automation for 5G operators. The collaboration was aimed to integrate Elastic’s data analytics tools with Wilab’s Network Data Analytics Function (NWDAF).
It improves operators’ ability to monitor and manage their networks with greater efficiency. The integration facilitates anomaly detection, forecasting, and machine learning workflows, which enables more agile and precise network management.
For the first quarter of fiscal 2025, Elastic (NYSE:ESTC) reported non-GAAP EPS of $0.35, which surpassed the average analyst estimate of $0.25. Revenue for the quarter also exceeded expectations, reaching $347 million. It was $2.39 million above the forecast and represented an 18.1% increase year-over-year.
Despite this strong performance, the company’s guidance for the second quarter indicates a more modest growth trajectory, with revenue expected to be between $353 million and $355 million, a 14% increase from the previous year. The cautious outlook suggests potential difficulties in customer segmentation and broader economic challenges.
The company recently underwent a significant reorganization of its sales segmentation to better target large enterprises and mid-market customers. The restructuring has led to disruptions in the sales process and resulted in slower deal closures and a shortfall in customer commitments. Additionally, tighter budgets in Europe have caused delays in some deals, contributing to the results for the quarter. It is one of the worst 5G stocks to buy according to short sellers.
On a positive note, Elastic (NYSE:ESTC) has made significant advancements in product innovation. New features, such as Automatic Import for SIEM data onboarding and enhancements to their AI platform, have advaned its technological capabilities. The introduction of Elastic Cloud Serverless is another highlight, which strengthens the company’s position in the market.
According to our database, 58 hedge funds held stakes in Elastic (NYSE:ESTC) in the second quarter, with positions worth $1.2 billion. With 1.69 million shares, valued at $192.587 million, Tiger Global Management LLC is the largest shareholder of the company, as of June 30.
Artisan Partners 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 5th on our list of 10 worst 5G stocks to buy according to short sellers. 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 timeframe. 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.