Key Highlights

● Elastic fell Friday as search and observability software sold off with the sector.

● Palantir tumbled into correction territory, erasing roughly $34 billion to $35 billion in value.

● Elastic, maker of Elasticsearch, has expanded into observability and security analytics.

● Meta, IBM and SAP report Oct 21; PCE inflation data arrive Oct 29.

Lower with the group

Elastic (NYSE:ESTC), a member of the Russell 1000, fell on Friday. A market roundup grouped Elastic with Okta (NASDAQ:OKTA), Datadog (NASDAQ:DDOG), Palantir Technologies (NASDAQ:PLTR) and Zscaler (NASDAQ:ZS) among software stocks that declined, and said the moves reflected the sector selloff. No company-specific news was cited.

Elastic is the company behind Elasticsearch, a widely used search engine that businesses build into their applications and websites. It has expanded that technology into observability, which helps companies monitor the performance of their software and infrastructure, and into security analytics. More recently, it has promoted its platform as a tool for AI applications that need to search large amounts of data quickly.

Observability peers slide

Elastic's closest peer in observability, Datadog, slid on Friday, according to market data. Okta sank, and Zscaler fell. Palantir tumbled into correction territory, erasing roughly $34 billion to $35 billion in market value, according to market reports.

The selling ran through the whole software sector. In a 45-stock software basket, 41 fell, erasing roughly $130 billion in value. Snowflake (NYSE:SNOW) tumbled despite positive partner checks from JPMorgan, according to published reports. MongoDB (NASDAQ:MDB) fell sharply, and Salesforce (NYSE:CRM) and ServiceNow (NYSE:NOW) declined.

All but seven of the 75 S&P 500 technology stocks closed lower, market data showed.

Questions about AI financing

The driving theme, according to market commentary, was a shift in focus from what AI can do to how it will be financed. Reports indicated the rotation erased more than $1 trillion from semiconductor and AI-related stocks over the week. CoreWeave (NASDAQ:CRWV), whose debt load tops $50 billion, was a focal point.

Rates also weighed on growth stocks. The head investment strategist at the Franklin Templeton Institute said that "pressure across the long end of the curve acts as a valuation headwind for risk assets." The 10-year Treasury yield eased to roughly 5.1, but it reached its highest level since 2002 earlier in October.

Some analysts urged perspective. "First of all, this is more sentiment driven. This is not about fundamentals," a BofA Securities senior software analyst said.

The broader market

The Russell 1000 has no reported closing level for Friday. The S&P 500 fell 84.62 points to 7,659.44, and the Nasdaq Composite dropped 572.99 points to 26,140.03 in its worst week since June. The Dow Jones Industrial Average slipped 175.28 points to 52,002.41. The Cboe Volatility Index jumped 3.53 points to 19.99 after touching its highest level since June 11.

Stocks opened higher and turned lower, with selling building through the afternoon. Energy, utilities and consumer staples rose as money moved into defensive sectors.

Elastic Cloud Usage and Big Tech Reads

Big Tech earnings next week will set the tone for the sector. Meta (NASDAQ:META), IBM (NYSE:IBM) and SAP (NYSE:SAP) report on Oct 21. The Federal Reserve's decision follows on Oct 28, and Fed Chair Kevin Warsh declined to preview it, saying: "I don't prejudge meetings." PCE inflation data arrive on Oct 29.

For Elastic, investors will look for signs that demand for its search, observability and AI tools is holding up when it next reports. Its consumption-based cloud business makes customer usage trends a key metric.