A little over a decade ago, I had a remarkable encounter on the subway in Washington, DC, that ultimately changed my life.
As I mindlessly scrolled on my iPhone to pass the time, I noticed a man driving around on his laptop in the seat across from me. He wore a black winter hat with the text ‘Palantir’ on it. Curious about what it could mean, I took to Google and searched for Palantir.
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Without me knowing it, Palantir Technologies (NYSE:PLTR) was a developer of data analysis software specializing in defense technology for the US military. From then on, I’ve continued to follow Palantir over the years and was particularly excited when the company finally went public at the end of 2020.
A few years later, Palantir has become a major force in artificial intelligence (AI). Below, I’ll break down how AI is making waves in the defense sector and why I see Palantir as a no-brainer stock to watch as the military doubles down on defense technology.
When it comes to AI, you probably think of applications related to workplace productivity, robotics, or even drug discovery capabilities. The subtle thing about these types of use cases is that they are usually seen in a positive light. In other words, people like to talk about them and that’s why they end up getting a lot of attention.
The defense industry is different. While it’s pretty common knowledge that government contracts are a huge deal, I think it’s fair to say that most people try to refrain from talking about the business side of the military. But the fact is that the federal government (including the Pentagon) has many of the same needs and pain points as a private business. Like any other organization, defense agencies monitor budgets, undergo long and rigorous procurement processes, and need to keep an eye on things like workforce and inventory.
In times of geopolitical unrest, the importance of cybersecurity and data analytics becomes even more apparent – as it is critical to providing the tools needed to make informed decisions quickly and efficiently. And that’s where Palantir comes into the picture.
Throughout much of 2024, Palantir has quietly announced a number of major contract wins with the Department of Defense (DOD). Megacap tech giants Amazon And Microsoft have noted Palantir’s strong presence within the defense sector, and both companies have integrated Palantir’s Artificial Intelligence Platform (AIP) with their respective cloud infrastructures, Azure and Amazon Web Services (AWS). These partnerships are aimed at improving security protocols within the Ministry of Defense.
But in early November, Palantir may have just scored its most lucrative military win yet. The Naval Information Warfare Center (NIWC) appears to be awarding Palantir a contract worth nearly $1 billion, according to public records. The press release states that the Department of the Navy “intends to award a contract to Palantir on an exclusive basis.” The deal has a term of five years and an estimated value of $920 million.
Palantir’s US government revenues are already growing 40% year over year, generating more than $1 billion in revenue per year. Now it appears the company has effectively doubled its revenue from the US government thanks to the NIWC deal.
While I’m excited about Palantir’s progress in the defense technology landscape, I have to say that this NIWC isn’t the only reason to buy the stock hand over fist. Palantir’s price-to-sales ratio (P/S) of 54.2 is abnormally high, and trends indicate that the stock has seen marked valuation expansion in recent periods.
While I think the stock has become overbought and the stock is too expensive to buy right now, the bigger idea is that AI is an evolving theme in the military. To me, Palantir appears well positioned to continue to penetrate this space and I am optimistic that the company will remain a major player in AI-powered defense capabilities.
Consider the following before purchasing shares in Palantir Technologies:
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Adam Spatacco has positions at Amazon, Microsoft and Palantir Technologies. The Motley Fool holds positions in and recommends Amazon, Microsoft, and Palantir Technologies. The Motley Fool recommends the following options: long January 2026 $395 calls to Microsoft and short January 2026 $405 calls to Microsoft. The Motley Fool has a disclosure policy.
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