Elastic (Elastic (ESTC)) is having a good Friday. The search and observability company reported fiscal first-quarter results that beat expectations, raised its full-year guidance, and gave investors a fresh reason to believe the AI story is more than just hype. Shares were up 21.26% at $101.54 in early trading.

Let's talk numbers. Adjusted earnings came in at 70 cents per share, comfortably ahead of the 58 cents analysts were looking for. Revenue rose 15% year over year to $478.113 million, also beating the $469.745 million consensus. Sales-led subscription revenue, a key metric for the company, grew 18% to $399 million. And on a constant-currency basis, revenue growth actually accelerated to 15% from 14% in the prior quarter. That's the kind of momentum investors like to see.

The customer story is getting more interesting too. Elastic ended the quarter with more than 1,800 customers generating at least $100,000 in annual contract value (ACV), adding over 80 new ones in the quarter. That's the biggest quarterly jump yet. These big spenders now account for 90% of sales-led subscription revenue, up from 87% a year ago.

But here's the part that's really moving the stock: AI. More than 37% of that $100,000-plus cohort, or over 670 customers, are now using Elastic for AI-related use cases. That's up from 21% a year ago, and the company added 70 net AI customers during the quarter. It's one thing to talk about AI tailwinds; it's another to show that kind of adoption curve.

The financials look solid too. Adjusted operating margin was 16.2%, above guidance, with subscription and total gross margins at 81% and 77%, respectively. The company also returned about $40 million to shareholders through buybacks, repurchasing roughly 800,000 shares. Since launching its $500 million buyback program in October 2025, Elastic has used $380 million and bought back 5.2 million shares as of quarter-end.

Looking ahead, the company's current remaining performance obligations (cRPO) rose 21% year over year to $1.2 billion, with constant-currency growth at 20% for the second straight quarter. Total RPO increased 27% to $1.9 billion. The net expansion rate was 111%, slightly down from 112% in the fourth quarter, but management expects improvement within four quarters as constant-currency revenue growth accelerates through fiscal 2027.

On the product front, Elastic rolled out several AI capabilities, including VectorDB, Index Mode, auto-calibration, and Jina's multimodal and multilingual search for on-premises and air-gapped environments. The company also acquired Deductive AI to automate complex investigations using reinforcement learning and continued strengthening its security offerings with Attack Discovery.

Now, the guidance. For the second quarter, Elastic expects adjusted EPS of 80 to 82 cents, right in line with the street's 80-cent estimate. Sales are projected at $486 million to $487 million, above the $483.397 million analysts expected. Sales-led subscription revenue for the quarter is seen at $407.5 million to $408.5 million.

For the full fiscal 2027, the company raised its adjusted EPS guidance to $3.29-$3.37 from $3.21-$3.29, which is above the $3.24 consensus. Sales outlook was bumped to $1.998 billion-$2.010 billion from $1.985 billion-$2 billion, compared with the $1.993 billion consensus. Sales-led subscription revenue is projected at $1.682 billion-$1.694 billion, up 17.4% on a reported basis and 17.5% in constant currency.

There's a small cost to all this optimism: Elastic expects another $2 million to $5 million in restructuring charges, on top of about $20 million for the rest of the fiscal year. But the company says it remains on track to exceed 20% sales-led subscription growth and improve its Rule of 40 performance, a metric that balances growth and profitability.

So, what's the takeaway? Elastic is executing, AI is a real driver, and the guidance suggests management sees more upside ahead. For investors, that's a pretty good combination.