This Company Signed an AI Deal With Palantir. Could It Be the Next Big Growth Stock?

Palantir Technologies (NASDAQ: PLTR) has been one of the top artificial intelligence (AI) stocks to own in recent years. And when it partners with a business, that can be a great sign for an emerging company.

In March, Palantir announced a deal to work with Archer Aviation (NYSE: ACHR), which could help it scale its manufacturing capabilities, and position it for long-term growth ahead. With Palantir working with Archer, could the aviation company become the next big growth stock to invest in?

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Will Archer become a big name in the air taxi industry?

Archer is in the business of developing electric vertical takeoff and landing (eVTOL) aircraft that can transport people and possibly solve traffic headaches in major cities like New York and Los Angeles. It's in the early stages of producing its Midnight aircraft, and by the end of this year, its goal is to be able to manufacture at least two per month.

Leveraging Palantir's AI tools to help improve its processes can help the company hit its goals. By 2030, Archer hopes to be making 650 aircraft per year.

The company has been named the official air taxi provider of the Olympic Games in Los Angeles in 2028. A strong showing there could legitimize Archer's business model to a much wider range of consumers, and investors. The key will be producing enough eVTOLs (the Midnight can transport just four passengers) by then and having them ready to go for the Games.

But even before that, and as early as this summer, the company expects to deliver a Midnight aircraft (piloted) to the United Arab Emirates. Meeting that goal would be another good sign of progress for investors.

Plenty of risk with the stock

A clear risk with Archer's stock at this early stage is that it isn't generating any revenue yet, and its losses are piling up. During the first three months of the year, the company incurred an operating loss of $144 million, versus $142.2 million in the prior-year period. The danger is that as the company scales operations and starts producing aircraft at a fast rate, its expenses could rise quickly.

The good news is that the company is well funded with more than $1 billion in cash on its books; It used up $94.6 million over the course of its day-to-day operating activities in the first three months of the year. For now, there appears to be sufficient runway for the business to grow, but I'll be curious to see what its operating expenses and cash burn look like when production really ramps up, and what its margins prove to be on its aircraft.

Is Archer stock a buy today?

In the past 12 months, shares of Archer have soared 200%, pushing its market cap up to over $5 billion. This is for a business that isn't generating revenue yet, and which is in the early stages of production. At this kind of valuation, investors are taking a big leap of faith on the business and that it will be able to scale effectively and efficiently, which is by no means a sure thing. Investors also shouldn't read too much into its partnership with Palantir, as that may not necessarily result in big gains or cost savings for Archer.

While there is a significant market opportunity for Archer in the long run in the air taxi industry, a lot depends on its deployment and production, and the effectiveness of its aircraft. For now, I'd suggest waiting on the sidelines to see how things play out, as there's still considerable uncertainty and risk around the business. At such a high valuation, there isn't any margin of safety for investors.

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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Palantir Technologies. The Motley Fool has a disclosure policy.