The year 2024 was a breakthrough year for the enterprise software company Palantir Technologies (NASDAQ:PLTR). Some of the more notable highlights include gaining admission into the S&P500 And Nasdaq-100 indications. Additionally, Palantir shares gained more than 357% in 2024, making it by far the best-performing stock in the S&P 500.
The biggest tailwind driving Palantir’s growth is by far artificial intelligence (AI). Over the past two years, a combination of retail investors, equity research analysts and large institutional funds have helped shape the bull narrative around Palantir – underlined by the company’s Artificial Intelligence Platform (AIP) software suite.
That said, most of the use cases showcasing AIP highlight how large companies are using Palantir to improve their data analytics capabilities in areas like fraud detection, logistics, healthcare, and more. An area that is often overlooked, on the other hand, is how Palantir is assisting the US military with its AI roadmap.
Let’s explore a new partnership Palantir has entered into with the drone specialist Red cat companies (NASDAQ: RCAT)and find out what makes it unique and why it could be a game-changer for Palantir in the long run.
In the age of AI, unmanned autonomous systems are one of the emerging themes in the defense space. These could be products such as boats, submarines or aircraft that are fully controlled by AI.
Red Cat is a drone company that specializes in robotics and software development for the US military. The company is developing a ‘Family of Systems’ approach to its products and services: it offers an ecosystem of drones, sensors and cost-efficient services to assist in mission-critical operations, especially in reconnaissance environments.
Palantir is best known for its data analytics, but it also has some more niche products that fly under the radar. One of those services includes Palantir’s Visual Navigation (VNav). The simplest explanation of VNav is that it is an alternative navigation platform for drones when traditional methods, such as GPS, are unreliable.
Under the partnership with Palantir, Red Cat will integrate VNav and Palantir’s operating system (called Warp Speed) into its Black Widow drones.
The Red Cat deal is probably no coincidence. Just days before the partnership was announced, Palantir also said it was working with another military-focused autonomous systems developer, Anduril.
Over the summer, Wedbush Securities equity research analyst Dan Ives suggested an interesting idea when it comes to Palantir’s valuation. He suggested that investors should look at Palantir through the lens of a sum-of-the-parts (SOTP) model. In an SOTP analysis, investors must look at each segment of the company separately and apply a separate valuation to each segment.
When it comes to Palantir, assessing the right value for its public sector operations can be daunting. Working with the federal government tends to be bumpy and can be one-off, so these types of companies typically don’t command as high a valuation premium as, say, a fast-growing software company.
Still, in the second half of 2024, Palantir has identified new ways to leverage the kind of growth it’s experiencing on the commercial side of the business into its public sector business. The company worked with hyperscalers, including Microsoft And Amazonboth of which deploy their cloud infrastructures on AIP.
Additionally, Palantir is also strengthening its ties with defense contractors such as L3Harris Technologiesand government consulting giant Booz Allen Hamilton. These strategic partnerships are likely to translate into once again accelerating growth of Palantir’s public sector business. More importantly, this will not only lead to higher revenue streams, but it will also help Palantir expand its gross margin and profitability profile.
All in all, I see the deal with Red Cat as a game changer. Palantir is laying the foundation for years to come as a leader in AI-driven protocols for the US military.
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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, L3Harris Technologies, Microsoft, and Palantir Technologies. The Motley Fool recommends Booz Allen Hamilton and recommends the following options: long January 2026 $395 calls at Microsoft and short January 2026 $405 calls at Microsoft. The Motley Fool has a disclosure policy.
Is Palantir’s deal with Red Cat a game changer? was originally published by The Motley Fool
