Shares of Palantir Technologies  (PLTR 8.48%) are surging on Tuesday. The company's stock gained 9.2% as of 1:21 p.m. ET, and was up as much as 9.6% earlier in the day. The jump comes as the S&P 500 (^GSPC 0.91%) gained 0.8% and the Nasdaq Composite (^IXIC 1.68%) rose 1.7%.

Palantir's stock is seeing a boost from reports that the U.S. and Saudi Arabian governments have reached a new deal that could create significant new business opportunities in the Middle East for the artificial intelligence (AI)-fueled data analytics company.

A major Saudi-U.S. deal

Bloomberg is reporting that the Trump administration will soon announce a deal granting Saudi Arabia increased access to advanced semiconductors from American chip companies. President Trump, currently visiting Riyadh as part of a broader Middle East trip, could announce the agreement as soon as this week. A similar deal with the United Arab Emirates could follow.

A possible opportunity

Though the deal makes no mention of Palantir and is focused on AI-enabling chips, it shows the Trump administration is more willing than its predecessor to allow Middle Eastern countries access to sensitive, security-related goods -- and likely services from companies like Palantir. Indeed, CEO Alex Karp was present in Saudi Arabia, alongside other leaders in tech.

The deal will include security provisions that are right up Palantir's alley. The U.S. government is seeking to control access and monitor data centers that use American chips -- exactly the type of work at which Palantir excels.

Image source: Getty Images.

Beware the valuation

Despite the positive sentiment, with a price-to-earnings ratio (P/E) of more than 500, Palantir's valuation is out of touch with reality. There is no doubt that the company is executing at a very high level, but with a valuation this high, a level of perfection is required that I don't think is possible to sustain long term. I would stay away from Palantir stock.