From accelerated computing to cloud infrastructure, humanoid robotics, and self-driving cars, the "Magnificent Seven" stocks of Microsoft, Alphabet, Amazon, Apple, Nvidia, Meta Platforms, and Tesla are leading the artificial intelligence (AI) revolution. As a result, investors have cheered on big tech, which has led to outsize movements in these stocks -- helping fuel the S&P 500 to new record highs.
But savvy investors understand that there are many other opportunities in the AI realm outside of megacap tech. Big data analytics company Palantir Technologies (PLTR +3.37%) and cloud database developer Oracle (ORCL +12.70%) recently announced a new partnership centered around ambitions in AI.
I think this relationship has the potential to disrupt the generative AI landscape, and see it as a game-changer for both enterprises. Let's dig into how Palantir and Oracle are working together and assess if either of these stocks are good buys right now.
NASDAQ: PLTR
Key Data Points
Coming for the "Magnificent Seven"
Indeed, the Magnificent Seven always seem to be in the spotlight when it comes to breaking news in the world of artificial intelligence. Microsoft is a major investor in OpenAI, the start-up behind ChatGPT. Meanwhile, both Amazon and Alphabet are investors in a competing generative AI platform called Anthropic.
Microsoft, Amazon, and Alphabet are all leaders in cloud computing. One of the common threads stitching together these various investments and partnerships is that big tech is relying on applications powered by ChatGPT and Anthropic to help ignite new growth opportunities in cloud infrastructure.
For this reason, it's not entirely surprising to see smaller players team up in an effort to take on big tech.
Image source: Getty Images.
How Palantir and Oracle can benefit from each other
There are a couple of big-ticket items to explore from the deal between Palantir and Oracle.
Per the agreement, Palantir will be moving data workloads from its Foundry software platform to the Oracle Cloud Infrastructure. Moreover, Palantir will also deploy additional instances including Gotham and Artificial Intelligence Platform (AIP) to Oracle's cloud network.
This could be a big deal for Oracle. According to Statista, Microsoft, Amazon, and Alphabet account for more than two-thirds of the cloud computing market. Oracle trails its big tech counterparts by a wide margin -- accounting for only 2% market share.
With the addition of Palantir workloads moving to its platform, Oracle has a unique opportunity to gain more momentum in cloud infrastructure and compete more heavily with the likes of Microsoft, Amazon, and Alphabet.
For Palantir, I think the benefits of this relationship are more subtle. Since releasing AIP last April, Palantir has resorted to immersive seminars called "Bootcamps" to help market the product. Essentially, these events allow prospective customers to demo Palantir's software and identify a use case centered around AI.
Considering Palantir's robust customer growth last year, the Bootcamp strategy has proven successful so far. However, I think the deal with Oracle could serve as an even further source of lead generation for Palantir's customer pipeline.
By working with Oracle, Palantir has an opportunity to cross-sell to an entirely new base of customers and further its AI efforts.
Is there an investment opportunity?
Although the relationship between Oracle and Palantir is encouraging on the surface, it'll likely be a while before either company begins recognizing any significant gains from the deal. For this reason, I think pouring into either stock based on news of this deal alone is not a prudent move.
Rather, taking a look underneath the hood of each business is a better idea before making an investment decision. During Oracle's fiscal third quarter of 2024, ended Feb. 29, investors learned that the company has $80 billion in remaining performance obligations (RPO) -- up 29% year over year. Essentially, this means that Oracle has $80 billion of new business waiting to be recognized.
This is an encouraging sign because it shows that demand for cloud products is both high and spread out among many players in the industry -- not just the big three. Considering Oracle's forward price-to-earnings (P/E) multiple of roughly 21 is essentially identical to that of the S&P 500, investors may want to scoop up some shares now before the Palantir deal kicks into full gear.
On the other hand, Palantir has seen its valuation multiples become a bit stretched over the last few months. Its price-to-sales (P/S) ratio of 22.1 is higher than many other high-growth software-as-a-service (SaaS) businesses.
PLTR PS Ratio data by YCharts
One thing that helps Palantir stick out among the competition is its consistent profitability and positive free cash flow.
I think Palantir is entering a new phase of growth thanks to the secular themes fueling AI. Now, with Oracle by its side, Palantir looks well on its way to further penetrating both the public and private sectors.
Despite its premium valuation, I see Palantir as a compelling AI opportunity and think now is as good a time as ever to scoop up some shares.
