Investing.com -- Goldman Sachs has initiated coverage of Dynatrace and Elastic, rating the former a buy with a $45 price target and the latter neutral with a $50 price target, as analyst Matthew Martino argues that artificial intelligence is fundamentally reshaping the enterprise observability market.

"Observability is entering a particularly dynamic period, as AI deepens the strategic importance of machine data, and raises the bar for the platforms built to harness it," Martino wrote.

He pointed to rapidly scaling compute intensity and a shift from reactive monitoring toward autonomous remediation as key structural forces pulling budget toward consolidated platforms.

On Dynatrace, Goldman Sachs said the company "sits squarely in that current," highlighting a fresh product cycle in logs, an upcoming contract transition to its DPS pricing model, and a free cash flow margin above 25% as a compelling setup against what the bank described as a reset valuation of roughly 14 times EV/free cash flow.

Goldman Sachs believes the market is underappreciating Dynatrace's growth trajectory.

On Elastic, the bank acknowledged structural relevance across search, observability and security, as well as improved execution over the past two years.

However, Martino said they need "clearer evidence that cloud growth can durably inflect" before turning more constructive. Elastic Cloud continues to decelerate even as AI has broadened the company's narrative and consumption-oriented peers accelerate, Martino noted.

Goldman Sachs noted that competition is intensifying across all three of Elastic's end markets, with broader platforms aiming to own more of the workflow and data layer, a dynamic that is said to add urgency to Elastic's need to demonstrate durable growth acceleration.