Palantir (NASDAQ:PLTR) stock jumped 11% yesterday after signing an artificial intelligence (AI) partnership with Microsoft (NASDAQ:MSFT) and delivering solid earnings.
The agreement will bring Microsoft Azure capabilities to national security agencies from inside Palantir’s AI Platform.
PLTR stock opened this morning at about $29 per share, with a market capitalization of about $65 billion. MSFT stock was selling at $404, with a market cap of $2.99 trillion.
Inside the Deal
The deal looks good for both sides.
- Microsoft gets more access to classified accounts that already use Palantir’s software.
- Palantir gets a huge, stable partner that can increase its capabilities.
- Palantir enhances its reputation as “Software Prime,” the primary source of cutting-edge AI capabilities.
- The U.S. military may be the biggest winner. Palantir Chief Technology Officer Shyam Sankar believes the Department of Defense should spend half what it does but twice as quickly. Taxpayers will be happy to hear that.
- The deal will help Palantir win new commercial accounts. An example is one with Wendy’s (NYSE:WEN) to put its software into the hamburger chain’s supply chain. Commercial accounts represent about one-quarter of Palantir’s billings.
- The Microsoft alliance should help Palantir toward its aim of joining the S&P 500. The company was left out of the last rebalancing but is now consistently profitable.
- Palantir is convincing stock analysts its valuation is not extreme. Third Bridge is the latest to raise its price target on the stock.
- Palantir’s rise may help the entire market, convincing skeptics that AI is delivering on its promises. The huge investments of companies like Microsoft have caused some analysts to question the whole AI thesis.
PLTR Stock: What Happens Next?
Palantir’s market cap remains extreme, at 23 times its sales. However, this was also the case for Nvidia (NASDAQ:NVDA) and other AI stocks when their booms began.
On the date of publication, Dana Blankenhorn held a LONG position in MSFT. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor held a LONG position in NVDA.
