UBS upgrades Dynatrace to buy, predicts AI tailwinds will drive accelerating growth to 18%

This cybersecurity stock could soar on AI tailwinds. UBS says to buy it now

Dynatrace is poised to rally on a combination of artificial intelligence-related tailwinds, according to UBS. The investment bank upgraded Dynatrace to buy from neutral. It also hiked its price target to $60 from $36, implying 46% upside from Monday's close. "Our checks cited a deep technical moat around the platform and we picked up no real appetite to move away from Dynatrace," analyst Radi Sultan said Monday in a note to clients. "Overall our check feedback pointed to a modest growth acceleration and healthy demand backdrop driven by strong core [application performance monitoring] demand, logs traction, and an emerging AI lift." Dynatrace leverages AI to monitor software applications' performance and security across cloud and hybrid environments, among other services. The global cybersecurity market is projected to nearly triple to $699.39 billion by 2034, according to a report from market research firm Fortune Business Insights. That booming demand for cybersecurity services could especially benefit AI-powered providers such as Dynatrace, per UBS. The bank forecasts Dynatrace will see accelerating annual recurring revenue growth of 16% in fiscal 2027, with that figure rising to 18% by the end of fiscal 2029. By contrast, Wall Street expects the company's ARR to decelerate over the same periods, Sultan noted. UBS' call falls in line with consensus on Wall Street. Of the 37 analysts covering Dynatrace, 25 have a buy or strong buy on the stock, LSEG data shows. Shares are down nearly 5% in the year to date.

AI observability boom could lift Dynatrace growth By Investing.com

Investing.com -- Dynatrace shares could be poised for a re-rating as improving demand for observability software and emerging artificial intelligence-related spending drive faster growth than investors currently expect. UBS has initiated coverage of the company with a Buy rating and a $60 price target. The brokerage said its discussions with more than 10 customers, partners and industry experts pointed to a healthy demand backdrop supported by strong application performance monitoring (APM) demand, growing adoption of log-management tools and early AI-related tailwinds. UBS expects Dynatrace's annual recurring revenue (ARR) growth to accelerate to 16%, 17% and 18% in fiscal 2027-2029, compared with Wall Street forecasts for a slowdown to 16%, 14% and 13%, respectively. UBS said enterprise customers continue to increase spending on observability tools as IT environments become more complex, while partners reported practice growth accelerating to 18%-21% in recent quarters and expected demand to remain stable or improve through year-end. The firm also noted that observability software is increasingly being prioritized within corporate IT budgets. The brokerage expects AI to become a meaningful growth driver over time, though the impact remains modest today because most enterprises are still in the early stages of deploying AI applications at scale. UBS estimates AI-related demand could increase Dynatrace spending by 10% to 20% over the next two to three years, adding roughly three to five percentage points to growth, with most of the benefit likely arriving from fiscal 2028 onward. Customers highlighted growing demand for monitoring large language models, AI agents and increasingly complex software environments created by AI coding tools. UBS said Dynatrace's Davis AI platform, which automates root-cause analysis and anomaly detection, was frequently cited as a competitive advantage. The bank also downplayed concerns that advances in generative AI could make observability platforms obsolete. Customer and partner checks suggested that Dynatrace's deep integration into enterprise infrastructure, deterministic root-cause analysis capabilities and high switching costs create a significant competitive moat. UBS said it found little evidence that customers were considering replacing the platform despite growing AI adoption. At current levels, UBS argued the stock's valuation does not fully reflect the potential for accelerating growth or future AI-driven demand, noting that Dynatrace trades at a discount to peers despite similar mid-teens growth prospects.

Dynatrace Poised to Benefit From AI Tailwinds, Demand Strength, UBS Securities Says

Dynatrace, Inc. is an artificial intelligence (AI)-powered observability platform. It is advancing observability for digital businesses and transforming the complexity of modern digital ecosystems into business assets. It enables organizations to analyze and automate. Its platform combines broad and deep observability, continuous runtime application security, and advanced AI to support information technology (IT) operations, development, security, and business teams, enabling organizations to optimize cloud and IT operations, accelerate secure software delivery, and improve digital performance. Its platform's solutions include infrastructure observability, application observability, AI observability, digital experience, business analytics, software delivery, threat observability, application security, and log management. Its application security detects, analyses, and remediates runtime application vulnerabilities and attacks in real time.