Palo Alto Networks to acquire Chronosphere for $3.35 billion

SANTA CLARA - Palo Alto Networks (NASDAQ:PANW) announced Wednesday it has entered into a definitive agreement to acquire Chronosphere, a next-generation observability platform, for $3.35 billion in cash and replacement equity awards. The acquisition represents about 2.5% of Palo Alto Networks’ current market capitalization of $135.3 billion.

The cybersecurity company aims to strengthen its capabilities in handling the data demands of AI workloads through this acquisition. Chronosphere, recognized as a Leader in the 2025 Gartner Magic Quadrant for Observability Platforms, reported annual recurring revenue of over $160 million as of September 2025, with triple-digit year-over-year growth. InvestingPro data shows Palo Alto Networks is currently trading slightly above its Fair Value, with an "Overall Financial Health" score rated as "GREAT" based on its growth, profitability, and cash flow metrics.

"The foundational requirement for every modern AI data center is constant uptime and resilience, which demands real-time, always-on observability delivered at the right cost," said Nikesh Arora, Chairman and CEO of Palo Alto Networks, in a press release statement.

The acquisition will combine Chronosphere’s architecture with Palo Alto Networks’ Cortex AgentiX platform to transform observability from passive monitoring to autonomous remediation. The integration aims to provide deeper visibility across security and observability data at petabyte scale while improving cost efficiency.

Martin Mao, Co-founder and CEO of Chronosphere, stated that the combination allows them to pair their observability platform with "the world’s best security company" to solve complex data and resiliency challenges. Palo Alto Networks has demonstrated strong financial performance, with revenue of $9.22 billion in the last twelve months and growth of 14.9% year-over-year.

Chronosphere’s platform is already used by several AI-native companies, including two major large language model providers.

The transaction is subject to regulatory approvals and customary closing conditions. It is expected to close in the second half of Palo Alto Networks’ fiscal 2026.

In other recent news, Palo Alto Networks is gearing up for its third-quarter earnings report, with Morgan Stanley maintaining an Overweight rating and a $228 price target for the company. The firm expressed optimism due to positive channel checks and reseller survey results, suggesting strong market momentum. In addition, BMO Capital has raised its price target for Palo Alto Networks to $230, citing the cybersecurity sector as a compelling investment area with minimal AI dislocation risk. The company has also announced a collaboration with IBM to launch a Quantum-Safe Readiness solution, which aims to address security challenges posed by quantum computing. This joint effort will combine Palo Alto Networks’ cryptographic intelligence with IBM’s transformation services. Furthermore, Palo Alto Networks has integrated its Prisma AIRS security platform with AI agent platforms from companies like Factory, Glean, IBM, and ServiceNow. This integration seeks to protect against security threats as AI adoption in enterprises accelerates. Additionally, the company has appointed Mark Goodburn to its board of directors, while Mary Pat McCarthy will retire in January 2026.

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