100 million reasons to love Palantir stock right now

I’m a big proponent of looking for subtle, less obvious opportunities that lurk in the shadows of broader megatrends.

When it comes to artificial intelligence (AI), I think its applications in the defense sector are underappreciated — if not misunderstood. Although Palantir Technologies (PLTR -0.70%) emerged as a darling of the AI ​​revolution, I see its presence in the public sector as a true hidden gem.

Below, I’ll break down Palantir’s latest defense win and explore why I see this deal as such an important catalyst for the company’s long-term growth narrative.

Taking advantage of the day

The National Geospatial-Intelligence Agency (NGA) is a security detail within the Department of Defense (DOD). A major responsibility of the NGA is running Project Maven, one of the Army’s primary efforts around AI infrastructure, machine learning and cloud computing.

AlphabetGoogle has been a core member of Project Maven since 2018. However, some employees have disputed Google’s involvement — particularly regarding the military’s exploration of autonomous defense systems and how they might be used in battle.

After Google chose not to renew its contract with Maven in 2019, Palantir stepped in and took the driver’s seat.

Image source: Getty Images.

Huge wins for Palantir

Like any business, DOD seeks to seamlessly integrate and connect information across its enterprise. This initiative is called the Combined Joint All-Domain Command and Control (CJADC2) protocol and is attached to the Maven Project.

There have been some notable wins for Palantir since its involvement in Project Maven and CJADC2.

In May, the US Office of Digital and Artificial Intelligence awarded Palantir a five-year deal worth up to $480 million. Under the terms of the agreement, Palantir software will be an important component of the CJADC2 initiative as it relates to expanding DOD’s data analytics capabilities, which include AI and machine learning.

In addition to the above transaction, Palantir was also awarded a $33 million contract aimed at integrating additional vendors into Palantir’s existing DOD infrastructure.

Most recently, the Army Research Laboratory (ARL) awarded Palantir a five-year deal worth up to $100 million. According to the press release, Palantir will help expand “access to the Maven Smart system across the military services to include the U.S. Army, Air Force, Space Force, Navy and Marine Corps.”

Don’t underestimate Palantir’s government business

Since replacing Google in 2019, Palantir has won several deals as part of the Project Maven initiative. The obvious benefit is that these deals are worth up to several hundred million dollars and can therefore be a lucrative source of revenue for Palantir.

However, the less obvious point here is that AI should become a more important cornerstone of defense capabilities over time. I believe Palantir’s substantial Project Maven awards serve as a sign of approval from the US military and could lead to even more long-term defense contracts.

Image source: Palantir.

From a macro perspective, Palantir’s US government revenue is accelerating at a healthy pace — thanks in large part to these DOD contracts. The company’s latest $100 million Maven deal and a new defense partnership with Microsoft are just two catalysts that should ignite even more public sector penetration for Palantir.

To me, Palantir’s public sector operation is widely overlooked and not fully included in the long-term valuation opportunity. I’m optimistic that Project Maven will continue to be a source of growth for Palantir over time, and the company’s influence in the broader defense sector will serve as a tailwind that investors shouldn’t underestimate.