Dynatrace Says AI Workloads Fuel Observability Demand, Consumption Growth

Dynatrace Says AI Workloads Fuel Observability Demand, Consumption Growth

AI workloads are driving demand for observability as enterprises need end-to-end monitoring of AI performance, accuracy, security and outputs. Dynatrace says AI-related customers consume its platform at roughly 1.5 times the rate of non-AI customers. Dynatrace reported 41% organic net-new ARR growth in the first quarter, supported by AI-generated code, a more than 160% increase in new-logo ARR and rapid log-management consumption, which has surpassed $200 million. The company’s Platform Subscription model now accounts for 75% of ARR, while upcoming renewals and rising consumption could improve net revenue retention.

Dynatrace estimates AI observability could represent a $10 billion incremental market growing 40% to 50% annually.

Dynatrace NYSE: DT CEO Rick McConnell said the observability market is entering a new phase as artificial intelligence workloads increase the need for monitoring, analysis and automation across enterprise technology environments. Speaking at the KeyBank Technology Leadership Forum, McConnell said AI is not affecting all software categories equally, but he views observability as an “AI winner” because AI workloads require more oversight rather than less. Traditional observability has focused on business resilience, including whether software is running and meeting expected requirements. AI observability adds questions around whether an AI system’s outputs are accurate and based on the right information, he said.

AI Raises the Importance of End-to-End Observability McConnell said application performance management, or APM, is particularly relevant for AI observability because tracing is important for use cases such as large-language-model evaluation and experimentation. However, he said organizations also need a broader, integrated platform that combines traces, metrics, logs, real-user data and security-related information. “The way to have confidence in your answers is by having the collection of all these domains using all data types,” McConnell said. He argued that enterprises can no longer effectively rely on separate vendors for APM, infrastructure monitoring, user monitoring, security and log management.

Company Cites ARR, Log and Customer Acquisition Momentum McConnell characterized Dynatrace’s first-quarter performance as strong across the business. He said the company reported 41% organic net-new annual recurring revenue, or ARR, growth, exceeding the high end of its guidance across metrics. While he cautioned that the company does not expect to deliver more than 40% net-new ARR growth every quarter, McConnell said the quarter supported Dynatrace’s outlook for ARR reacceleration. He described fiscal 2026 as a year focused on stabilizing ARR growth and fiscal 2027 as a year aimed at reaccelerating it. McConnell identified three themes behind the quarter’s results: Growing demand associated with AI workloads and AI-generated code. Rapid growth in log-management co...