Shares of Palantir Technologies (PLTR) surging on its fourth-quarter earnings report, with the results driven by increased demand for the company’s AI offerings.

Morningstar Technology Equity Analyst Ahmed Khan joins Yahoo Finance Live to weigh in on the results and comments from Palantir CEO Alexander Karp about the company’s trajectory.

Khan believes the strength in the US commercial side of the business "is a very good sign for Palantir,” due to the early- adoptive nature of the US market. Palantir has an edge against competition, Khan argues, saying “Palantir’s competitors may not have solutions as bespoke as Palantir does.”

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Eyek Ntekim

Video Transcript

SEANA SMITH: All right, let's get to one of our big movers of the day, and that is Palantir. Shares are surging this morning, driven by demand for its AI offerings, sending the defense software maker up more than 19%. Look at that, 21% almost move here to the upside in pre-market trading.

Now on the company's earnings call last night, CEO Alex Karp weighed in on how Palantir is looking to keep up with that surging demand for AI. Here's what he had to say.

ALEXANDER KARP: If you took the total number of people, total number of enterprises that are doing AI of any kind, including algebra, and said it would be probably less than 300-- we have 300 customers that are creating operational results using our AIP-- operational, meaning, define how you want, I'm defining as they'll pay $1 million or more for it. So it's real. And we're doing this at a scale and pace that is inconceivable for Palantir up until recently.

SEANA SMITH: All right, for more on the results and the commentary that we got from Alex Karp and team, we want to bring in Ahmed Khan. He's Morningstar's Technology Equity Analyst. Ahmed, it's great to have you here. So certainly, an impressive quarter, at least by the numbers for Palantir. When you take a look at some of the revenue growth that they did post, the fact that they had much stronger than expected results, strength, obviously, in the US commercial side of the business. Is this type of growth sustainable?

AHMED KHAN: So, first of all, one thing I would say is that when it comes to US commercial, the strength in that specific segment is a very good sign for Palantir as we think about the long term. And the reason is that US companies typically are early adopters of new technology. So if you have US commercial organizations picking up Palantir's AIP, that usually with regard to other technology before it means that the rest of the world's commercial organizations are going to pick it up as well, if Palantir is able to execute well.

So we think that certainly, the groundwork that Palantir is laying down with its AIP and with its earlier platforms, the Apollo, Foundry, Gotham, are going to bode well for the company in terms of the next near term, medium term, and long term.

BRAD SMITH: How much pricing power do you think Palantir has for some of these services? You heard Alex Karp talking about operational definition of paying and having customers pay $1 million or more for their AI product. And so it is very real in the demand. But from here, incrementally, how much pricing can they push through to some of those portfolio clients?

AHMED KHAN: For sure-- the thing is one thing very important to understand when talking about AI and some of these big data, data science projects that companies undertake is that you have to think about the opportunity cost, right? And the opportunity cost is either you don't have that service that Palantir is providing or you have to do it in-house or you have to get another vendor to provide that service for you.

Now if you try to move that in-house, you have to look at, well, what is the labor cost of getting all those data scientists, building out those solutions, and how long will that take? And that's probably significantly high, especially in the current market for AI talent. And Palantir's competitors may not have solutions as bespoke as Palantir does.

So what that means is that Palantir is it has incredibly high switching costs. That's why we have a narrow economic moat on Palantir's business, which implies that yeah, they do have pricing power, especially when it comes to some of these organizations that have been clients for Palantir over a period of time.