BofA sees implications for public observability vendors after Palo Alto deal

After Palo Alto Networks (PANW) announced it has agreed to acquire private observability software vendor Chronosphere for $3.35B, BofA laid out the firm’s views on the acquisition’s implications for public observability vendors Datadog (DDOG), Dynatrace (DT), and Elastic (ESTC), arguing that they “need to keep their innovation engines running on full speed to ensure their product offerings are disruptive and differentiated to drive share gains.” Pointing out that Palo Alto management said that Chronosphere is able to deliver a comparable offering at a third of the cost of industry leading solutions, the firm believes pricing compression risk “could become topical again,” adding that the acquisition will be topical on Elastic’s fiscal Q2 earnings call. What the firm thinks is “most interesting about this acquisition” is that observability and security vendors “see each other’s total addressable markets as growing, attractive, and up for grabs…and likely even more so in an AI fueled future,” the analyst tells investors.