Shares in Palo Alto Networks Inc. declined more than 2% in late trading today after the company reported earnings and revenue beats in its fiscal 2026 first quarter and announced that it had entered an agreement to acquire cloud-native observability company Chronosphere Inc.

For the quarter that ended on Oct. 31, Palo Alto Networks reported adjusted earnings per share of 93 cents, up from 78 cents per share in the same quarter of the previous fiscal year, on revenue of $2.47 billion, up 16% year-over-year. Both figures were ahead of the 89 cents per share and revenue of $2.46 billion expected by analysts.

Palo Alto Networks ended the quarter with $15.5 billion in remaining performance obligations, up 24% year-over-year and next-generation security annual recurring revenue of $5.85 billion, up 29% year-over-year. Secure access service edge annual recurring revenue was also up 34% year-over-year to more than $1.3 billion.

For its 2026 fiscal second quarter, Palo Alto Networks expects adjusted earnings per share of 93 cents to 95 cents on revenue of $2.57 billion to $2.59 billion. At the midpoint, the outlook was ahead of the 93 cents per share expected by analysts but fell short of an expected $2.59 billion in revenue.

For the full year, the company expects adjusted earnings of $3.80 to $3.90 on revenue of $10.5 billion to $10.54 billion. Both were ahead at the midpoint of an expected $3.81 per share and revenue of $10.51 billion.

“Our strong start to the fiscal year was marked by excellent results across all metrics and significant platformization wins,” said Nikesh Arora, chairman and chief executive officer of Palo Alto Networks, in the company’s earnings release. “Our robust innovation engine, paired with the strategic acquisitions of CyberArk and Chronosphere, positions us as the data and security partner of choice in the AI era.”

As noted by Arora, the company announced alongside its earnings today its intent to acquire Chronosphere, a next-generation observability platform built to scale for the artificial intelligence era.

The deal, if approved by Chronosphere shareholders, will see Palo Alto Networks pay $3.35 billion in cash and replacement equity awards, subject to adjustments.

Founded in 2019, Chromosphere offers a cloud-native observability platform designed for modern, distributed infrastructure. The platform ingests vast quantities of metrics, traces and logs and allows engineering and DevOps teams to monitor, analyze and troubleshoot their applications and infrastructure in real time.

Chronosphere’s platform emphasizes control, cost-efficiency and scale and helps organizations reduce non-actionable data, prioritize relevant signals and avoid being overwhelmed by telemetry noise.

The company serves clients who operate at cloud scale, such as organizations with thousands of microservices, large fleets of containers and high-volume telemetry workloads. Its services shorten the time to detect and resolve incidents, lowering the total cost of observability by reducing redundant data and facilitating faster feedback loops for engineering teams.

Coming into its acquisition, Chronosphere had raised $369 million in funding across four rounds, including a round of $43.3 million in January 2021, $200 million in October 2021 and $115 million in January 2023.

“We founded Chronosphere to provide scalable resiliency for the world’s largest digital organizations,” said Martin Mao, co-founder and CEO of Chronosphere. “Palo Alto Networks is the perfect strategic partner for our customers, partners and employees. It allows us to combine our disruptive observability platform with the world’s best security company, accelerating our momentum in solving the most complex data and resiliency challenges.”

Mao spoke with theCUBE, SiliconANGLE Media’s livestream studio, back in June, where he discussed how Chronosphere was redefining cloud-native observability with Logs 2.0 and real-time data control.

Photo: Palo Alto Networks