Last month, a small-cap company by the name of Red Cat struck a deal with the US Army to build 5,880 unmanned aircraft systems for them over the next five years. The same day, Palantir stock was up 280% for the year, well on its way to becoming the best-performing S&P 500 stock for the year. Now the two companies have combined to strike a deal that will combine their technologies to improve the United States defense system.
As part of the deal, Palantir will integrate its Visual Navigation software and artificial intelligence capabilities with Red Cat’s drone technology. This deal will transform autonomous drone warfare, which has become a common element of modern warfare. The resulting drone is small enough to be carried in a backpack while the technology will make it the most capable drone ever deployed by the US. Red Cat shares are up 15% during trading today on the back of the news, while Palantir stock continues to take a breather after a record rally.
Palantir is primarily a software company that is deeply integrated into the US defense thanks to its lead in developing AI technologies. The company’s Gotham platform is used for defense and intelligence purposes while its Foundry platform is designed for commercial applications across healthcare, manufacturing, and finance among other sectors.
The company’s primary revenue used to come from government contracts. However, quarter by quarter, the company is making inroads into the commercial sector and reducing its reliance on government contracts. This is one reason for its record rally this year. The company continues to drive significant growth in both the sectors.
The valuation of the stock is interesting. The stock continues to be overvalued mainly because of its growth prospects and involvement in AI. While analysts have their eyes on the commercial sector growth, people are discounting the government spending on AI. As China continues to threaten the US global dominance by taking a lead in AI, the US government is bound to spend more and more on AI infrastructure. That’s exactly where Palantir sits. It is ideally placed to capture a big piece of this spending going forward, which is why we are still bullish on the stock.
PLTR is not on our latest list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 43 hedge fund portfolios held PLTR at the end of the third quarter which was 44 in the previous quarter. While we acknowledge the potential of PLTR as a leading investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as PLTR but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.
