Microsoft and Palantir on Thursday announced a partnership to enhance the national security capabilities of U.S. defense and intelligence agencies with AI, which the company says is a first within classified systems.

Palantir is a data analytics company known for providing software platforms that help organizations integrate and analyze large, complex datasets. Through this new collaboration, Palantir's technologies will be integrated with Microsoft's Azure cloud computing services, including advanced language models like GPT-4 from OpenAI.

Cloud computing has become essential for powering advanced AI systems, which require immense computational resources that often exceed the capabilities of local infrastructure. By tapping into the scalable resources of the cloud, AI applications can be hosted and run remotely, overcoming local hardware limitations.

However, for sensitive national security applications, using general public cloud environments poses significant security and compliance risks.

This is where the partnership between Microsoft and Palantir comes into play. By integrating Palantir's AI platforms and tools with Microsoft's government-approved cloud infrastructure—including the Azure Government Secret and Top Secret clouds—the U.S. agencies can now leverage cutting-edge AI capabilities within their isolated, classified computing environments.

Military, intelligence, and national security agencies will be able to harness the power of cloud-based AI while maintaining the necessary levels of security and control required for their critical missions.

"Bringing Palantir and Microsoft capabilities to our national security apparatus is a step change in how we can support the defense and intelligence communities," said Palantir’s CTO Shyam Sankar in an official announcement, "[Palantir] has pioneered the approach to operationalizing AI value—beyond chat—across the enterprise.

“We're thrilled to be the first industry partner to deploy Microsoft Azure OpenAI Service in classified environments," Sankar added.

According to Palantir, its suite of tools will be deployed within Microsoft's government and classified cloud environments and will enable national security operators to build AI-driven operational workflows across a range of applications, from logistics and contracting to prioritization and action planning.

This would not be the first time either of the two has struck major deals with the military. In May, Microsoft deployed a GPT-4-based model onto a cloud that served as a government-only network, and Palantir signed a $480M deal with the U.S. Army to develop and deploy its MAVEN program that uses AI to scan and identify enemy systems.

This latest deal also allows Palantir's other products—including its Foundry data integration platform and Gotham mission planning software—to be used within Microsoft's government-approved cloud environments.

To support the implementation of these capabilities, Palantir and Microsoft said they be providing “bootcamp experiences” for the defense and intelligence community to trial the integrated technology.

The announcement comes as Palantir reported strong second-quarter earnings, raising its annual revenue forecast above analyst estimates. The company's trailing 12-month revenue in its U.S. government business, which includes intel and defense agencies, surpassed $1 billion for the first time, accounting for 54% of its total revenue during the second quarter.

Palantir's (PLTR) shares closed up over 11% on Thursday following the news of its deal with Microsoft, continuing the company's strong year-to-date performance, with its stock up around 80% since January.

Edited by Ryan Ozawa.