Morgan Stanley upgraded Dynatrace Inc. to Overweight from Equalweight on Tuesday, citing improving demand dynamics and raised its price target to $65 from $58. The move follows a series of bullish revisions from other brokerages, with Scotiabank lifting its target to $61 and Canaccord Genuity to $60.
The upgrades reflect expectations for sustained revenue growth at Dynatrace, a provider of observability software. Morgan Stanley projects net-new annual recurring revenue (ARR) growth of more than 20% annually through fiscal 2029, including 20%+ in fiscal 2027. The firm also expects ARR growth of 20%+ in fiscal 2028 and 2029, underpinned by a large upcoming renewal cohort of Dynatrace Platform Subscription customers that is 50% larger than the fiscal 2026 renewal base. Roughly 70% of this cohort is weighted toward the second half of fiscal 2027.
Dynatrace reported first-quarter adjusted earnings per share of $0.48, exceeding the $0.44 consensus estimate, while revenue reached $554.54 million, ahead of the $549.29 million projection. UBS noted organic net-new ARR growth of 41% year-over-year, and the company executed a $275 million share repurchase program in the quarter.
The company’s financial profile remains robust, with revenue growth of 18% over the last twelve months and a gross profit margin of 82%. Underlying usage growth for the upcoming customer renewal cohort is tracking above 20%, according to InvestingPro data.
Morgan Stanley highlighted that the broader observability market is experiencing its strongest demand since 2022, driven by public cloud expansion, ongoing software development initiatives and early benefits from enterprise AI investments. The firm also pointed to operational improvements following go-to-market organization changes implemented two years ago.
Dynatrace completed the acquisition of Arize, an agent observability provider, for $915 million, further strengthening its product portfolio. Multiple analysts, including DA Davidson and UBS, maintain Buy ratings on the stock.
