Morgan Stanley raised its price target on Dynatrace to $65 from $58 on Tuesday, citing strengthening demand for the company’s observability software amid a rebound in public cloud adoption and corporate AI investments.
The upgrade reflects expectations that Dynatrace will return to net new annual recurring revenue growth of more than 20% in fiscal 2027, with similar expansion projected for fiscal 2028 and 2029. The company’s fiscal 2027 ARR is forecast at $2.47 billion, rising to $3.03 billion in fiscal 2028 and $3.67 billion in fiscal 2029.
Dynatrace closed at $49.05 on August 24, implying roughly 32% upside to the new target. The stock trades at about 5.3 times estimated 2027 sales and 20 times estimated 2027 free cash flow, compared with peer medians of 7.2 times and 22 times, respectively.
Analysts noted the observability market is experiencing its strongest demand since 2022, driven by resumed digital transformation spending and early gains from AI deployments. Dynatrace’s platform subscription cohort is now 50% larger than the fiscal 2026 baseline, with roughly 70% of renewals concentrated in the second half of fiscal 2027.
The company has expanded into AI observability and autonomous operations, including the acquisition of Arize. More than 800 customers used Dynatrace’s agentic capabilities for autonomous operations in the first quarter of fiscal 2027, up from about 500 in the prior quarter.
