Is the Deal Between Palantir Technologies and Oracle a Game Changer?

Is the Deal Between Palantir Technologies and Oracle a Game Changer?

One of the most high-profile trends over the past year or so has been the growing adoption of artificial intelligence (AI). The latest advances in this quickly evolving field have created something of an AI gold rush as businesses scramble to determine how best to leverage this nascent technology.

There are a vast and growing number of applications for generative AI, which can create original content, including text, images, and video. It can also summarize data, produce presentations, and streamline time-consuming and mundane tasks, thereby increasing worker productivity. Time is money, so companies are eager to claim their share of the expected windfall.

Now, AI software and data analytics pioneer Palantir Technologies (NYSE: PLTR) and database and cloud computing specialist Oracle (NYSE: ORCL) are joining forces to help bring AI to the masses.

Image source: Getty Images.

A pairing of titans

In a press release on Thursday, Palantir and Oracle announced a far-reaching collaboration to combine their AI and cloud expertise to further accelerate the adoption of AI. The duo will “provide secure cloud and AI solutions aiming to power businesses and governments around the world.”

The goal of the partnership is to help organizations get the most value out of their data, thanks to the combination of Palantir’s “leading AI and decision acceleration platforms,” which will leverage Oracle’s “distributed cloud and AI infrastructure.”

Palantir offers three broad-based data analytics software services. Gotham is the company’s original government-centric and defense-oriented data analytics platform. Foundry offers similar services for corporate and enterprise clients, and Metropolis handles banks, hedge funds, and other financial services firms.

As part of the agreement, Palantir will move Foundry workloads to Oracle Cloud. Furthermore, Palantir will make Gotham and Artificial Intelligence Platform (AIP) — its generative AI offering — deployable across Oracle’s distributed cloud for the first time.

One of the obvious target markets is government customers and enterprise users seeking greater control over their data. The release highlighted Oracle’s “air-gapped regions for defense and intelligence customers,” and Palantir’s work with law enforcement and government intelligence agencies is well documented. Combining Palantir’s AI-powered data analytics with Oracle’s secure cloud seems like a no-brainer.

A win-win situation

Both Palantir and Oracle have been attracting attention for their AI efforts in recent months.

Palantir’s expansion beyond its original government mandate has served the company well. In the fourth quarter, revenue of $608 million grew 20% year over year, and Palantir generated its fifth consecutive quarterly profit, but that tells just part of the story. While government revenue — which tends to be lumpy — grew 11% year over year, commercial revenue increased 32%. This was led by its U.S. commercial segment — its fastest-growing business — as revenue soared 70% year over year and is expected to jump at least 40% in 2024.

The catalyst for that growth was AIP. Palantir began offering boot camps to kick-start customer adoption of AI and demand has been off the charts. By working side-by-side with Palantir’s engineers, companies can solve real-world and business-specific problems with the help of its generative AI-powered application.

In October, management announced Palantir’s intention to complete 500 such boot camps over the coming year. The company has since “blown that goal out of the water,” hosting more than 560 boot camps across 465 organizations in just four months.

Oracle has also been attracting attention for its recent successes. In its fiscal 2024 third quarter (ended Feb. 29), revenue of $13.3 billion grew 7% year over year, generating adjusted earnings per share (EPS) of $1.41, up 16%.

It was Oracle’s backlog, however, that raised eyebrows. The company’s remaining performance obligation (RPO) — or contractually obligated sales that haven’t yet been booked as revenue — jumped to $80 billion, up 29% year over year to an all-time record.

Furthermore, Oracle’s cloud infrastructure revenue increased 52% year over year. This far outpaced the performances of Amazon Web Services, Alphabet‘s Google Cloud, and Microsoft Azure, which generated growth of 13%, 26%, and 30%, respectively. This suggests Oracle was stealing market share at the expense of the competition. CEO Safra Catz said demand for its AI cloud capabilities “substantially exceeds supply,” and expects Oracle’s cloud infrastructure operation to remain in a “hypergrowth phase … for the foreseeable future.”

Is the deal a game changer?

One of the biggest benefits of this deal is that Palantir and Oracle will — jointly and individually — offer a wide range of complementary cloud and AI services. Oracle Cloud provides “performance, scalability, and flexibility.” When combined with Palantir’s “leading data and AI platforms,” it offers users the best of both worlds and could attract potential customers who might otherwise pass.

Given their growth prospects and the tantalizing AI wild card, both stocks offer compelling opportunities. Oracle is currently selling for 22 times forward earnings, making it a steal. At 70 times forward earnings and 16 times forward sales, Palantir might seem prohibitively expensive, but those metrics fail to factor in its accelerating growth. However, the forward price/earnings-to-growth (PEG) ratio — which takes that growth into account — results in a multiple of less than 1, the standard for an undervalued stock.

While the deal might not rise to the level of being a game changer, it does enhance the prospects of two of AI’s fastest-rising stars. It will also likely help both companies continue to expand their market share in the fast-growing AI space.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Danny Vena has positions in Alphabet, Amazon, Microsoft, and Palantir Technologies. The Motley Fool has positions in and recommends Alphabet, Amazon, Microsoft, Oracle, and Palantir Technologies. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

Is the Deal Between Palantir Technologies and Oracle a Game Changer? was originally published by The Motley Fool