Dynatrace is a leader in AI, says BMO Capital Markets

Dynatrace (Dynatrace Stock Quote, Charts, News, Analysts, Financials NYSE:DT) shares have been on a great run so far in 2023, with shares up over 30 per cent. But there’s likely more upside, according to BMO Capital Markets analyst Keith Bachman, who after recent quarterly earnings has a “Buy” rating on the stock and $55 target price.

Dynatrace has application security and business analytics tools in its unified software intelligence platform that uses AI to automate cloud operations and enable digital transformation for companies. 

Bachman said Dynatrace is far and away a leader in its AI capabilities in tracing and analyzing network and application performance.

“What Dynatrace can do is automatically identify where a problem is, number one; two is to give organizations help on what’s the biggest problem and where’s the priority; and three is remediate, which is a fancy word for saying help solve the problem,” said Bachman, speaking on CNBC on Monday. 

“When you have an organization that’s 40,000 or 50,000 people, it tends to produce many different problems, and so we think Dynatrace’s AI capabilities are far in advance what the competitors can do,” he said.

Waltham, Massachusetts-based Dynatrace released its fourth quarter fiscal 2023 financials on May 17 for the period ended March 31, 2023. The company delivered $314 million in Q4 revenue, up 25 per cent year-over-year, with Subscription Revenue of $293 million, up 25 per cent from a year earlier. GAAP EPS was $0.27 per share compared to $0.00 a year earlier. 

For the fiscal year, revenue was up 25 per cent to $1.159 billion and EPS was $0.37 per share compared to $0.18 in fiscal 2022.

“Observability is quickly moving from optional to mandatory as customers look to tame the explosion of data and increased complexity that’s driven by their cloud migration and digital transformation initiatives,” said CEO Rick McConnell in a press release.

“As we begin fiscal 2024, we remain focused on driving innovation to meet customers’ evolving needs, managing the business prudently, and investing thoughtfully in strategic priorities to capture the substantial opportunities we see ahead,” he said.

Bachman said Dynatrace has a sustainable competitive advantage in the big picture AI space, and whereas other companies have been falling over themselves lately to show their AI bona fides, Dynatrace’s leadership in the space speaks for itself.

“Every company we deal with is focusing on presenting an AI strategy right now and some of it is candidly a little bit of catch up,” said Bachman.

“Dynatrace has had a pretty formidable capabilities on AI for several years and probably hasn’t been promotional about those capabilities. But I think over the course of time investors will come to understand that Dynatrace really is a leader in the broader category of AI, which begins to create sustainable competitive advantage in our opinion,” he said.