Does Archer Aviation's Deal With Palantir Change the Game?

Last year, shares of air mobility company Archer Aviation (NYSE: ACHR) and enterprise software specialist Palantir Technologies (NASDAQ: PLTR) gained 59% and 340%, respectively -- handily outperforming the returns generated by the S&P 500 and Nasdaq Composite.

Last week, Palantir hosted an immersive seminar, during which investors learned how the company's customers are leveraging its artificial intelligence (AI) software. One of the more intriguing applications deploying Palantir's AI software is in the aviation industry -- and Archer is leading the way.

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Let's explore how Archer Aviation and Palantir are working together, and assess why the relationship between these two companies is so important.

How do Archer Aviation and Palantir work together?

Archer is a development-stage company building electric vertical takeoff and landing (eVTOL) aircraft. These eVTOLs can be thought of as electric air taxis -- meant to complement ride-hailing services, trains, or metros in densely populated areas.

As you might imagine, there is quite a bit of planning that goes into building a new vehicle category. In addition to research and development (R&D) for battery technology, Archer also faces challenges from a manufacturing perspective as well as a stringent regulatory environment, given high safety standards in the aviation field.

Archer is using Palantir's Foundry and Artificial Intelligence Platform (AIP) suites to help identify opportunities for efficiency in the manufacturing process, as well as building a new software platform to help in areas such as air traffic control and route planning.

Image source: Getty Images.

Why is this deal beneficial for Archer?

I see the relationship between Archer and Palantir as mutually beneficial.

The aviation industry has long been ruled by the likes of Boeing and Airbus. While each of these companies made their mark in commercial aviation, it's fair to say that there has been little in the way of innovation in the industry for some time. Archer has an opportunity to write a new script in the aviation field -- paving the way for a more tech-first vision, underscored by breakthroughs in AI.

In addition, a more subtle opportunity for both companies could be to leverage Palantir's relationship with the U.S. military. Archer has expressed explicit interest in selling its aircraft beyond commercial applications -- and the U.S. military has already taken note of how eVTOLs could be seen as advantageous in specific circumstances.

Is the deal between Archer and Palantir a game changer?

While Archer remains somewhat of a speculative investment opportunity right now, I am encouraged by the company's choice to work with top providers in the AI landscape. Given the successful launch of AIP over the last couple of years, I am optimistic that air mobility represents a compelling use case for Palantir's services.

For Palantir, a successful deployment of its products with Archer could lead to further use cases down the road in the aviation industry more broadly. If the work with Archer proves successful, Palantir has an opportunity to parlay this case study as a template for more business with other companies disrupting the air mobility market.

For these reasons, I see the deal between Archer and Palantir as potentially changing the game for both companies. I would caution investors from buying into a hype narrative right off the bat, though.

Shares in Archer and Palantir have run up quite a bit over the last year, and this partnership alone does not warrant buying either stock today. Rather, I think investors are best off tuning into earnings calls or keeping a close eye on further press releases that may reference or update how Archer's use of Palantir is bearing fruit.

Furthermore, my suspicion is that the deal with Archer is one of Palantir's smaller contracts. Given Archer is still a pre-revenue business, I suspect the company is highly cognizant of its expense profile. To me, working with Archer and witnessing a successful outcome will help Palantir from a brand perspective more than a financial one in the short term.

Palantir has a unique opportunity to work with Archer across both the private and public sectors, and leverage this deal into future business with other leaders in the aviation space -- hence, potentially turning this deal into numerous opportunities down the road.

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Adam Spatacco has positions in Palantir Technologies. The Motley Fool has positions in and recommends Palantir Technologies. The Motley Fool has a disclosure policy.