Palo Alto Networks, the cybersecurity company founded by Israeli entrepreneur Nir Zuk, said Wednesday it will acquire cloud observability platform Chronosphere for $3.35 billion, marking its latest bid to expand in the fast-growing, AI-intensive data center market.
The Santa Clara, Calif.-based firm said the cash-and-stock deal will integrate Chronosphere’s large-scale observability system directly into Palo Alto Networks’ AI-powered AgentiX platform. Chief Executive Nikesh Arora said the combination would dramatically expand the company’s ability to diagnose and remediate complex performance issues inside modern AI workloads.
“Once we leverage AgentiX with Chronosphere, we will take observability from simple dashboards to real-time, agentic remediation,” Arora said. “We are excited to not just enter this space, but to disrupt it.”
The acquisition is expected to close in the second half of Palo Alto Networks’ fiscal 2026. Chronosphere, whose annual recurring revenue topped $160 million at the end of September, is being purchased at nearly 21 times ARR. Analysts described the price tag as aggressive but aligned with Palo Alto’s strategy of consolidating and scaling AI-driven infrastructure services.
The announcement arrived alongside Palo Alto Networks’ quarterly earnings, which showed higher revenue and improved operational efficiency. The company posted first-quarter profit of $334 million, or 47 cents a share, compared with $351 million, or 49 cents, a year earlier. Adjusted earnings reached 93 cents a share—above FactSet expectations of 89 cents.
Quarterly revenue rose 16% to $2.47 billion, slightly above analyst forecasts. Remaining performance obligations—a key measure of backlog—grew 24% to $15.5 billion. Annual recurring revenue from next-generation security products increased 29%.
Arora said the results demonstrate the success of Palo Alto’s “platformization” strategy, in which the company bundles multiple cybersecurity tools into unified platforms rather than selling products individually. While the approach initially prompted investor skepticism, management insists it is driving deeper customer adoption and longer-term contracts.
The Chronosphere deal comes as Palo Alto Networks also moves toward finalizing its previously announced $25 billion acquisition of CyberArk. DA Davidson analyst Rudy Kessinger said the combination of multiple major transactions likely weighed on Palo Alto shares, which fell about 4% in after-hours trading on Wednesday.
The company raised its full-year fiscal 2026 revenue outlook to a range of $10.50 billion to $10.54 billion, up slightly from prior estimates. Adjusted earnings guidance also increased to between $3.80 and $3.90 a share.
For the fiscal second quarter, Palo Alto Networks forecast revenue between $2.57 billion and $2.59 billion, in line with analyst expectations.
Arora said the company’s expanding stack of AI-native infrastructure tools—including Chronosphere—positions Palo Alto Networks as a major player in the next era of data resilience. “The foundational requirement for every modern AI data center is constant uptime and resilience,” he said. “Chronosphere was built for the AI era from day one.”