Snowflake Inc. (SNOW) is apparently in the market for more AI firepower. The cloud data platform company is in talks to buy Observe Inc., an application monitoring startup, for about $1 billion, according to a report from The Information on Wednesday.

The deal hasn't closed yet, but it makes sense given where Snowflake is heading. Observe operates a modern observability platform built on a streaming data lake, which is designed to make searching faster, improve data correlation, and cut operating costs for companies managing massive amounts of application data. Translation: it helps businesses keep an eye on what their software is actually doing, which becomes more important as AI workloads get more complex.

Building Out the AI Toolbox

This isn't Snowflake's first acquisition rodeo lately. Back in November, the company picked up Select Star, a data startup focused on metadata management and AI-driven analytics. That was about helping customers understand and organize their data better. An Observe acquisition would complement that nicely by adding monitoring and observability capabilities, which are becoming essential as more companies run AI models and cloud-native applications that need constant supervision.

The pattern is clear: Snowflake is assembling the pieces needed to be more than just a data warehouse. It wants to be the platform where companies store, analyze, and monitor their data-driven operations, especially as AI becomes the center of gravity for enterprise tech spending.

Flush with Cash After Strong Quarter

Snowflake certainly has the resources to make deals happen. As of October 31, the company reported $1.94 billion in cash and cash equivalents. Its stock is up roughly 46% year to date, driven by demand for AI-powered data tools and broader enterprise adoption.

The third quarter results were solid. Snowflake posted revenue of $1.21 billion, beating estimates of $1.18 billion. Adjusted earnings hit 35 cents per share, above the 31-cent consensus. Revenue climbed 29% year over year, with product revenue reaching $1.16 billion and a net revenue retention rate of 125%, meaning existing customers are spending more.

Remaining performance obligations, which represent future contracted revenue, jumped 37% to $7.88 billion. The number of customers spending more than $1 million annually grew to 688, a sign that Snowflake is landing bigger enterprise deals.

Looking Ahead

For the fourth quarter, Snowflake guided product revenue to between $1.195 billion and $1.20 billion, which implies about 27% growth. The company also highlighted expanded partnerships with Amazon Web Services (AMZN), Accenture (ACN), and Anthropic, pointing to growing demand from both traditional enterprises and AI-focused companies.

Analysts remain generally optimistic following the third-quarter report, citing strong growth in remaining performance obligations and early signs that AI adoption is driving bookings.

Snowflake stock closed at $225.10 on Tuesday, down 0.77%.