Palantir Technologies: A Major Player in AI and Defense Contracts

A little over 10 years ago, I had a curious encounter on the metro in Washington, D.C., that ended up changing my life.

While mindlessly scrolling on my iPhone to pass the time, I spotted a man working on his laptop across from me. He wore a black winter beanie that said “Palantir.” Intrigued, I Googled Palantir.

At that time, Palantir Technologies (NYSE: PLTR) was a data analytics software developer focused on defense technology for the U.S. military. I continued to follow Palantir over the years, eagerly awaiting its public debut in late 2020. Now, several years later, Palantir has become a key player in the artificial intelligence (AI) sector. This article examines the impact of AI on defense and highlights why Palantir is an essential stock to watch as the military invests further in defense technology.

Understanding the Significance of Defense Technology

When discussing AI, many people consider its applications in areas like workplace productivity or robotics. These topics often receive positive attention. In contrast, the defense industry tends to be overlooked in casual discussions about technology. While it’s known that government contracting is a massive industry, many people shy away from talk about the military and its financial operations. However, defense agencies, similar to private corporations, face many of the same challenges: managing budgets, navigating strict procurement processes, and tracking resources like personnel and inventory.

Amid geopolitical tensions, the necessity for strong cybersecurity and data analysis is heightened. It is essential for defense agencies to have the right tools for rapid and informed decision-making, and Palantir is well-equipped to provide those solutions.

Image source: Getty Images.

Palantir Secures Major Contracts

Throughout 2024, Palantir has announced a series of significant contract wins with the Department of Defense (DOD). Notably, major tech companies like Amazon and Microsoft have taken notice and integrated Palantir’s Artificial Intelligence Platform (AIP) into their cloud services, Azure and Amazon Web Services (AWS), to enhance security within the DOD.

In early November, Palantir may have achieved its most valuable military contract yet. Public records indicate that the Naval Information Warfare Center (NIWC) plans to award Palantir a contract valued at nearly $1 billion, specifically around $920 million, over five years. The Department of the Navy confirmed that this contract will be awarded on a sole-source basis to Palantir.

Image source: Palantir Investor Relations.

Currently, Palantir’s revenue from the U.S. government is growing by 40% annually, surpassing $1 billion. This new NIWC contract essentially doubles their U.S. government revenue base.

Evaluating Palantir Stock: Is It Time to Buy?

While I am enthusiastic about Palantir’s advancements in defense technology, the NIWC deal alone is not a sufficient reason to purchase stock immediately. With a price-to-sales (P/S) ratio of 54.2, Palantir’s shares are currently on the high end. Recent trends indicate that the stock may have undergone significant valuation growth too quickly.

PLTR PS Ratio data by YCharts

Despite the current pricing challenges, the ongoing evolution of AI within the military suggests that Palantir is on a positive trajectory. I foresee Palantir continuing to play a vital role in AI-driven defense solutions.

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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 in 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: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.