Dynatrace Inc

We bought Dynatrace (DT), a leading provider of observability and application performance monitoring software, as we believe the company is well positioned to benefit from the growing complexity of modern IT environments and the increasing adoption of artificial intelligence. Customer feedback and industry checks indicate healthy demand driven by strength in Dynatrace’s core monitoring platform, growing traction in log analytics and emerging AI-related use cases. We are particularly attracted to the company’s deep technical moat, which has resulted in strong customer retention and limited evidence of competitive displacement despite rapidly evolving AI technologies. As organizations invest more heavily in cloud infrastructure, automation and AI-enabled applications, we believe Dynatrace is positioned to capture more mission-critical software spending. With accelerating growth potential, strong free cash flow generation and an attractive valuation, we view Dynatrace as a compelling opportunity.

We progressively added Dynatrace as we believe it is a beneficiary of the ongoing AI transformation in the software sector. The application software category, where Dynatrace operates, is poised for a repricing as an AI winner, contrasting with the initial selloff that affected many software stocks. Our research indicates that while some software may face disruption, Dynatrace's observability solutions are likely to create significant customer value through AI integration. This positions Dynatrace favorably in a market where we see potential IRRs of 30-40%+ for our holdings, driven by the current undervaluation and strong growth prospects.

We sold Dynatrace as part of a strategic shift in our portfolio. While we recognize that the software group as a whole is not without risk in 2026, we believe that the current market conditions and the significant price declines in several software stocks, including Dynatrace, suggest that the risks are not adequately reflected in their valuations. This decision aligns with our focus on reallocating capital towards sectors with more favorable growth prospects, such as semiconductors.

Dynatrace, Inc (DT) was mentioned in the context of portfolio adjustments, but no specific argument or directional stance was provided regarding its future performance or valuation.

During the second quarter, we added a new position in the Information Technology sector with Dynatrace (DT), a leading computer network infrastructure observability company focused on application performance and monitoring. We believe Dynatrace will benefit from the shift to cloud computing and growth in artificial intelligence. These technologies add vast quantities of data and increased complexity, driving a growing need for network observability solutions. Furthermore, Dynatrace has been utilizing AI in observability for over a decade, which we believe puts it in a good position to benefit from the growth of agentic AI, which will require functionality that can head off potential problems with actionable and automatic resolution while eliminating uncertainty from AI-powered systems that use correlations.

We exited our position in Dayforce, Inc. in order to fund additional purchases in Dynatrace, Inc. (while at the same time not becoming overly exposed to the software industry). While we are long-term believers in the Dayforce growth opportunity, growth recently fell below our expectations, and we felt Dynatrace exhibited stronger growth opportunities both near and long term.