A little over 10 years ago, I had a strange encounter on the Washington DC subway that changed my life.
As I was casually scrolling through my iPhone to kill time, I noticed a man sitting across from me working on a laptop. He was wearing a black winter beanie with the word “Palantir” written on it. I wanted to know what that meant, so I searched Google for Palantir.
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Without even knowing it, Palantir Technologies(NYSE:PLTR) was a data analysis software developer specializing in defense technology for the U.S. military. From that moment on, I continued to monitor Palantir over the years, and was especially excited when the company finally went public in late 2020.
Now, several years later, Palantir has emerged as a major force within the company. The field of artificial intelligence (AI). Below, I’ll dive into how AI is making waves in the defense space and why I think Palantir is a stock to watch as the military doubles down on defense technology.
When you think of AI, you probably think of applications related to workplace productivity, robotics, and even drug discovery capabilities. The subtlety of such use cases is that they tend to be viewed positively. In other words, people enjoy talking about them, so they end up getting a lot of coverage.
The defense industry is different. It’s no secret that government contracting is big business, but I think it’s safe to say that most people try to avoid talking about the business side of the military. But in reality, the federal government (including the Department of Defense) has many of the same needs and challenges as private companies. Like any other organization, defense agencies must manage budgets, go through long and rigorous procurement processes, and monitor personnel, inventory, and more.
In times of geopolitical instability, the importance of cybersecurity and data analytics is even more pronounced, as providing the tools needed to make informed decisions quickly and efficiently is mission-critical. It will be. That’s where Palantir comes in.
Image source: Getty Images.
For much of 2024, Palantir has quietly announced some big plans. Won a contract with the Department of Defense (Department of Defense). Mega-cap tech giant Amazon and microsoft Noting Palantir’s strong presence in the defense sector, both companies have integrated Palantir’s Artificial Intelligence Platform (AIP) with their respective cloud infrastructures, Azure and Amazon Web Services (AWS). These partnerships focus on strengthening security protocols within the Department of Defense.
But in early November, Palantir may have just won its most favorable victory against the military yet. Public records show that the Naval Information Warfare Center (NIWC) has awarded Palantir contracts worth nearly $1 billion. According to the release, the Department of the Navy “intends to enter into a contract with Palantir on a sole source basis.” The contract is for five years and has an estimated value of $920 million.
Image source: Palantir Investor Relations.
Palantir’s U.S. government revenue has already increased 40% year-over-year, generating more than $1 billion annually. Now, it appears that the company has essentially just doubled the U.S. government’s revenue base thanks to its deal with NIWC.
I’m excited about Palantir’s progress in defense technology, but I have to say that NIWC is not the only reason to buy the stock. Palantir’s price-to-sales (P/S) multiple is an unusually high 54.2x, and trends suggest that Palantir’s stock has experienced significant appreciation in valuation over the past few years.
I think the stock is overbought and too expensive to buy right now, but the bigger idea is that AI is an evolving theme in the military. To me, Palantir looks well-positioned to continue moving into this space, and I’m optimistic that the company will continue to be a significant player in AI-powered defense capabilities.
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John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool’s board of directors. adam spatacco He has positions at Amazon, Microsoft, and Palantir Technologies. The Motley Fool has positions in and recommends Amazon, Microsoft, and Palantir Technologies. The Motley Fool recommends the following options: A long January 2026 $395 call on Microsoft and a short January 2026 $405 call on Microsoft. The Motley Fool has Disclosure policy.
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