We recently published a list of 16 Best Mid Cap Growth Stocks To Buy Now. In this article, we are going to take a look at where Dynatrace, Inc. (NYSE:DT) stands against other best mid cap growth stocks.
50 Basis Point Reduction: Exaggeration or Hidden Benefit?
Recent discussions among financial strategists emphasize the current stock market dynamics, particularly regarding the upcoming US elections. Investors are encouraged to view dips in stocks of some sectors as long-term buying opportunities, as historical trends suggest that 10% corrections can be advantageous entry points.
While recent sell-offs were driven by sector-specific issues rather than broader economic concerns, the long-term outlook remains positive. Despite recession worries, the US economy is stable, with strong consumer performance and corporate profits exceeding expectations. This has contributed to a rebound in the NASDAQ and S&P 500.
Inflation has reportedly dropped to a three-year low of 2.6% in August, marking the lowest rate since March 2021. As inflation continues easing, there has been ongoing speculation that the Fed may begin cutting interest rates, potentially starting with a 25 basis point reduction.
Market analysts, including Gene Goldman and Craig Johnson, anticipate multiple rate cuts due to slowing inflation and economic growth. We discussed this earlier in our article about the 12 Best Small Cap Tech Stocks to Buy. Here’s an excerpt from it:
“Gene Goldman expressed that his base case anticipates 3 rate cuts of 25 basis points each, beginning in September. His belief lies in the slowing inflation, a deceleration in economic growth, and the overall resilience of the economy, which he thinks is not as dire as some reports suggest. Goldman noted that while the labor market showed mixed signals, with both positive and negative data, the market’s expectations for deeper rate cuts may be exaggerated….
Craig Johnson was also of the opinion that a 25 basis point cut is already anticipated by the market, suggesting that a 50 basis point cut could raise concerns among investors. He believes that a series of 25 basis point cuts would align with their perspective. Craig emphasized the importance of staying calm considering that, historically, October has been a strong month for the markets, with gains observed 86% of the time since 1929.”
However, on September 16, Erika Najarian, UBS senior equity research analyst, mentioned that small and mid-cap stocks could potentially benefit from a 50 basis point cut.
Najarian attributes the recent underperformance of financial stocks to market concerns about the implications of potential rate cuts for economic stability, leading investors to question a less favorable economic outlook. She believes some anticipated cuts may already be reflected in money center bank stock prices due to their strong year-to-date performance. A 50 basis point cut could especially benefit mid-cap stocks affected by commercial real estate issues.
She explains that a 50 basis point cut would significantly impact net interest income. Money center banks benefit more from rising rates, while mid-caps are liability-sensitive and may see deposits repriced faster, favoring them if rates are cut aggressively.
The recent Basel III news with lower capital thresholds triggered negative stock reactions, exacerbated by JPMorgan’s comments on reduced investment banking and trading growth targets. Factors included ongoing Basel III discussions since December 2023 influencing pricing, a leading bank suggesting consensus net interest income expectations are too high, casting doubt on other banks, and emerging signs of consumer weakness potentially spreading beyond lower-income segments.
Najarian highlights the challenges analysts face in predicting net interest income due to shifting rate expectations. While higher rates have traditionally benefited bank profitability, potential cuts create uncertainty about financial performance. She points out that banks must choose between cutting rates to remain competitive or maintaining volume, complicating forecasts for net interest income.
As Najarian emphasizes the uncertainty surrounding interest rate cuts and their effects on the financial sector, and investors await clarity from the Fed, we’re bringing you a list of the 16 best mid-cap growth stocks to buy now.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A software engineer coding at a computer, surrounded by a cluttered desk of hardware.
Dynatrace Inc. (NYSE:DT)
Market Capitalization as of September 13: $15.12 billion
Number of Hedge Fund Holders: 49
Dynatrace Inc. (NYSE:DT) is a global technology company that provides a software observability platform based on AI and automation, helping businesses gain visibility into the performance of their applications and infrastructure, identify and resolve issues quickly, and optimize their IT operations.
Recent industry-wide outages have impacted billions of end users globally, making observability software mandatory in helping organizations minimize impact. The company’s revenue in FQ1 2025 was $399.22 million, up 19.93% from the same quarter of the prior year. ARR grew 20% year-over-year, while subscription revenue increased 21%. It also added 162 new logos to the Dynatrace platform, up 5% from the year-ago quarter.
It excels with its observability platform, using the Grail data store for real-time analytics and AI for quick incident resolution. Its recent innovations, like Site Reliability Guardian, enhance customer value.
The company has supported over 4,000 organizations in their digital transformation efforts. As one of only 8% of public software companies to surpass $1 billion in revenue, it has achieved cumulative revenue exceeding $5 billion and generated over $1 billion in free cash flow in the past 5 years.
As the observability market expands, driven by cloud migration and AI, the company’s end-to-end platform is becoming increasingly essential for organizations seeking visibility and resilience. With a total addressable market of $50 billion, it is well-positioned to capture growth opportunities and drive significant value.
ClearBridge SMID Cap Growth Strategy stated the following regarding Dynatrace, Inc. (NYSE:DT) in its first quarter 2024 investor letter:
“Several of our other IT holdings faced idiosyncratic headwinds during the period, resulting in three of our five worst-performing holdings being from the sector. This included security platform operator Dynatrace, Inc. (NYSE:DT), whose stock price slid despite beating third-quarter earnings estimates as management guided full-year annual recurring revenue lower due to larger and more complex deals taking longer to close.”
Overall, DT ranks 6th on our list of best mid cap growth stocks to buy now. While we acknowledge the potential of DT as an investment, our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than DT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.