Numerous Justified Reasons to Adore Palantir's Shares at the Moment
A little over a decade ago, I had an intriguing experience on the metro in Washington, D.C., that significantly impacted my life.
Bored out of my mind, I was aimlessly swiping on my iPhone to fill the time. My eye got drawn to a man who seemed engrossed in his laptop, sitting opposite me. He was sporting a black winter hat emblazoned with "Palantir" on it. Being curious, I searched Palantir on Google, and to my surprise, discovered that Palantir Technologies (PLTR -0.42%) was a software developer specializing in data analytics for defense technologies within the U.S. military.
From that moment on, I kept my eye on Palantir and was thrilled when the company went public in the last quarter of 2020.
Fast forward a few years, and today, Palantir has established itself as a major player in the realm of artificial intelligence (AI). In this text, I'm going to elaborate on how AI is shaking up the defense sector and why I believe Palantir should be on investors' watchlists as the military continues to invest in defense technologies.
Why is defense technology so significant?
When you consider AI, you're likely to think about applications related to improving workplace productivity, robotics, or even innovations in the field of drug discovery. What's noteworthy about scenarios like these is that they have a positive connotation, making them popular topics of discussion.
However, the defense industry takes a different approach. Although it's widely known that government contracts are a substantial business, many people tend to steer clear of delving into the financial aspects of the military. That being said, it is essential to note that despite people's reluctance to discuss it, the federal government (including the Pentagon) shares similar needs and challenges as any private corporation, such as budget management, stringent procurement processes, and inventory monitoring.
During periods of geopolitical turmoil, the significance of cybersecurity and data analysis becomes even more critical, as it becomes vital to quickly and efficiently provide tools for informed decision-making. Here is where Palantir comes into the picture.
Palantir's victory in the defense sector
During much of 2024, Palantir has quietly managed to secure numerous contracts with the Department of Defense (DoD). Giant tech companies such as Amazon and Microsoft have recognized Palantir's dominant position within the defense sector. In response, both tech titans have integrated Palantir's Artificial Intelligence Platform (AIP) with their respective cloud platforms: Azure and Amazon Web Services (AWS). The objective behind these collaborations is to strengthen security protocols within the DoD.
However, Palantir may have scored its most lucrative victory yet with the military back in early November. Based on public records, it appears that the Naval Information Warfare Center (NIWC) is planning to award Palantir a contract worth almost $1 billion. The statement confirms that the Department of the Navy "intends to award a contract on a sole-source basis to Palantir." The deal is slated to run for five years, with an estimated value of $920 million.
Palantir's revenue from the U.S. government has already shown a staggering 40% year-over-year growth, and the company generates more than $1 billion in revenue annually. Given that the NIWC deal could potentially double Palantir's base of U.S. government revenue, this is one impressive milestone.
Is Palantir stock a viable investment opportunity?
While the NIWC contract is a significant development for Palantir, it should not be the sole reason for eagerly jumping into the stock. With a price-to-sales (P/S) multiple of 54.2, Palantir's valuation is abnormally high, and recent trends indicate that the stock has experienced some dramatic valuation increases.
Despite my belief that the stock has become overvalued, I'm positive that AI will continue to play an essential role in the military. Given Palantir's position in this space, I remain optimistic that the company will continue to hold its ground as a pivotal player in AI-driven defense capabilities.
Given Palantir's substantial revenue growth from government contracts, particularly in the defense sector, individuals interested in finance and investing might consider adding Palantir Technologies (PLTR) to their portfolios. With the company's revenue exceeding $1 billion annually and a potential $1 billion contract from the Naval Information Warfare Center, Palantir's strong position in data analytics and artificial intelligence for defense technologies presents an intriguing investment opportunity.
