Dynatrace (DT) is facing a healthy demand scenario but the company's shares may mark time in the near-term as revenue acceleration is becoming a show-me story, Morgan Stanley said in a note emailed Thursday.

The investment firm said that with the company's Q4 results, annual recurring revenue growth was kept at 16% for the fourth quarter in a row, in line with guidance. However, the company's 2027 constant currency annual revenue guidance for 15.5% to 16.5% growth is now above consensus estimates, the note said.

Morgan Stanley said that investors may see the initial 2027 annual recurring revenue outlook as "aggressive" since the company's net-new annual recurring revenue increased just about 10% in H2.

The investment firm added, however, a solid demand background, considerable renewals, as well as improving sales productivity may back an acceleration in net new annual recurring revenue in 2027.

Morgan Stanley has an equal-weight rating on Dynatrace and lowered the company's price target to $40 from $43.

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