1 Billion Reasons to Love Palantir Stock Right Now

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 noticed a man cruising on his laptop in the seat across from me. He was wearing a black winter beanie that said “Palantir” on it. Curious about what it could mean, I went onto Google and searched for Palantir.

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Unbeknownst to me, Palantir Technologies (NYSE: PLTR) was a data analytics software developer specializing in defense technology for the U.S. military. From that moment on, I continued monitoring Palantir over the years and was particularly excited when the company finally went public back in late 2020.

Fast-forward a few years, and now Palantir has emerged as a major force within the artificial intelligence (AI) realm. Below, I’m going to 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 tech.

When it comes to AI, you probably think about applications related to workplace productivity, robotics, or even drug discovery capabilities. The subtle thing about use cases like these is that they tend to be viewed in a positive light. In other words, people enjoy talking about them and therefore they end up getting a lot of coverage.

The defense industry is different. While it’s pretty well known that government contracting is an enormous business, 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 of the matter is that the federal government (including the Pentagon) has many of the same needs and pain points as a private corporation. Just like any organization, defense agencies keep track of budgets, undergo long and strict procurement processes, and have to monitor things such as headcount and inventory.

During times of geopolitical unrest, the importance of cybersecurity and data analysis becomes even more pronounced — as it’s mission-critical to provide the tools required to make informed decisions quickly and efficiently. And that’s where Palantir enters the picture.

During much of 2024, Palantir has quietly announced a number of big contract wins with the Department of Defense (DOD). Megacap tech behemoths Amazon and Microsoft have noticed 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 focused on enhancing security protocols within the DOD.

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But in early November, Palantir may have just secured its most lucrative win yet with the military. According to public records, the Naval Information Warfare Center (NIWC) appears to be awarding Palantir with a contract worth nearly $1 billion. The release says the Department of the Navy “intends to award a contract on a sole-source basis to Palantir.” The deal is for five years and has an estimated value of $920 million.

Palantir’s U.S. government revenue is already growing 40% year over year and generates more than $1 billion of revenue per year. Now, it appears the company essentially just doubled its base of U.S. government revenue thanks to the NIWC deal.

While I am pumped about Palantir’s progress in the defense tech landscape, I have to say that this NIWC is not reason alone to buy the stock hand over fist. Palantir’s price-to-sales (P/S) multiple of 54.2 is abnormally high, and trends suggest the stock has experienced some pronounced valuation expansion in recent periods.

Even though I think shares have become overbought and the stock is too pricey to buy right now, the bigger idea is that AI is an evolving theme in the military. To me, Palantir appears well positioned to keep penetrating this space and I am optimistic that the company will remain an important player for AI-powered defense capabilities.

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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.

1 Billion Reasons to Love Palantir Stock Right Now was originally published by The Motley Fool