Will Hyundai deal make waves for Palantir's share price?

Data analytics group Palantir Technologies [PLTR] has sealed a $25m deal with Hyundai Heavy Industries [267250.KS] (HHI) to boost the Korean company’s shipbuilding expertise and reboot its own share price into the bargain.

Palantir announced at the CES trade show in Las Vegas on 5 January that it would be working with HHI to build a big data platform for its core businesses — including shipbuilding, offshore engineering, energy and industrial machinery.

Software Development

According to the agreement, HHI will provide its affiliates’ process expertise and sales know-how, whereas Palantir will offer software and development personnel.

The two groups said they would also consider establishing a joint venture to promote the big data platform business in the mid- to long-term: “The joint venture will commercialise big data solutions from platform construction to operation, to generate sales targeting domestic and foreign companies.”

The platform will be used to assist HHI’s new ‘Future of Shipyard’ project, which incorporates smart work management in all areas, including its energy affiliates, such as Hyundai Oilbank.

Hyundai Doosan Infracore, a subsidiary of the Hyundai Genuine industrial machinery group, had already developed DI 360, a big data collaboration platform, with Palantir in 2019. Doosan is now using the platform to manage its parts supply chain, handle onsite quality claim issues and boost sales opportunities. HHI and Palantir are also planning to build a platform for other affiliates, such as Hyundai Construction Equipment.

Kisun Chung, CEO of Hyundai Heavy Industries Holdings, said that the new deal will be an “important turning point in the innovation of our organisational culture that changes the way we work using data. The group’s core businesses are expected to gain more competitiveness.”

HHI Share Boost

It has certainly helped the HHI share price, athough as on 13 Januray’s close it fell 0.5% since the announcement, amid a weak broader market. However, it fell less that others because the share price has been supported in recent months by positive forecasts about the shipbuilding industry as the world steadily emerges from the pandemic.

A report from Technavio stated that the shipbuilding market would grow at a CAGR of 2.73% between 2020 and 2025, with Asia Pacific the strongest performing region.

Palantir Opportunities

Bloomberg said that the HHI deal could also help Palantir boost its growing commercial business outside of the US and “gain traction with global industrial companies”. It also reported that Palantir chief operating officer Shyam Sankar believes the project “represented a new model, allowing customers to only pay for what they use, and exercise more control over the process”.

Indeed, it has also recently sealed agreements with companies such as energy infrastructure group Kinder Morgan [KMI] and Dewpoint Therapeutics to analyse lab data.

Shares Blow

However, both these and the new HHI agreement have failed to lift the Palantir share price, which has toiled for much of the last 12 months, dropping 37% to 13 January’s close.

This is compounded by a mixed Q3 earnings report, which revealed a 36% leap in total revenues and a 46% hike in commercial customer count, but also noted decelerating growth among key government customers and a slower than hoped for expansion of its client base. Profit margins too came in lower than expectations.

In addition, Palantir has suffered from the general sell-off in high-growth, highly valued tech firms given higher inflation and speculation over interest rate hikes.

Analysts’ Views

Jefferies analyst Brent Thill recently lowered his average price target on Palantir to $24 from $31 with a ‘buy’ rating. He believes that 80% of software stocks will decelerate this year because of “digital digestion” coming out of the pandemic, as reported by the Fly.

Samuel Smith of TipRanks has a different take, highlighting Palantir’s “several customer bases”, including civil entities, corporate customers, the International Atomic Energy Agency and US intelligence, military and police.

“Palantir has substantial growth momentum and a massive long-term growth runway,” he wrote. “After the recent sell-off in the stock price, the valuation multiples look reasonable relative to the long-term growth prospects.”

If Palantir can build on the HHI momentum, show its worth on a truly global scale and pick up its client expansion pace, then expect the share price to respond.