Dynatrace upgraded by Morgan Stanley on rising AI observability demand

Morgan Stanley has upgraded its rating for Dynatrace from ‘Equal Weight’ to ‘Overweight,’ raising the price target from $58 to $65. The upgrade is driven by a surge in demand within the observability market, which is seeing its strongest growth since 2022.

Analysts suggest that as artificial intelligence moves from experimental phases to operational deployment, there is an increasing need to track complex AI application processes, including large language models (LLMs) and AI agents. This demand for observability—the ability to monitor logs, metrics, and traces across applications and infrastructure—is expected to drive sustainable revenue growth and margin expansion for Dynatrace over the next two years.

In a related move to expand its AI observability capabilities, Dynatrace has signed a definitive agreement to acquire Arize for a total of $915 million in cash and stock. This acquisition aims to integrate tools necessary for evaluating, operating, and improving AI applications from the development stage through to production.