Dynatrace (DT) reported accelerating growth in its AI observability business during a presentation at the Goldman Sachs Communacopia + Technology Conference on September 9, 2026.
Chief Executive Officer Rick McConnell said the shift toward AI-first architectures is making observability tools more essential each day. "In an AI-first world, we would submit that the die has been cast, that observability is more critical each day," McConnell told attendees.
The company disclosed that the number of customers running large language model workloads on its platform rose to 1,000 from more than 800 in a single quarter, while clients leveraging agentic capabilities grew to 850 from 500 over the same period. Dynatrace noted that AI-focused customers consume the platform at a rate 50% higher than non-AI customers.
Q1 new-logo annual recurring revenue (ARR) surged 160% year-over-year, the company called a record. Organic net new ARR for the quarter reached 41%, well above the typical teens run rate. Overall ARR growth ran in the 16% to 17% range, with consumption growth exceeding 20% and outpacing ARR by three to four percentage points.
Jim Benson, Dynatrace's chief financial officer, highlighted that the company's logs business doubled from roughly $100 million two quarters prior to approximately $200 million. "We view $200 million as a milestone. This isn't the destination. This is a billion-dollar-plus category for the company," Benson said.
Dynatrace also discussed its acquisition of San Francisco-based Arize, creator of the Phoenix open-source product, which receives more than 3 million downloads monthly from AI developers. The deal is expected to add about 2 percentage points to ARR growth, or approximately $40 million in revenue.
McConnell identified confidence as the primary bottleneck to broader AI deployment. "Once you start relying upon LLMs to provide data to end users from your mobile app, from your website, the challenge is you better make sure that that information coming out of that LLM is right," he said.
On the traditional observability side, Dynatrace said the market exceeds $80 billion and is growing in the mid-teens, while the emerging AI observability segment is projected to reach $10 billion by the end of the decade, growing well above 50% annually. The company maintained its leader position in Gartner's observability Magic Quadrant for a 16th consecutive year.
Dynatrace reported a market capitalization of $14.8 billion, a P/E ratio of 102, and a gross profit margin of 82% over the trailing twelve months through Q1 2027. Revenue growth for the same period stood at 18%.
The company also outlined a reorganization of its Global 500 account team, reducing account density while extending its high-touch sales model to an additional 200 to 250 accounts. Benson said sales productivity, which dipped less than feared during the FY2025 reorganization and stabilized in FY2026, is now improving — evidenced by four consecutive quarters of growth in trailing twelve-month net new ARR.
