Forget BigBear.ai and C3.ai: Buy This Artificial Intelligence (AI) Defense Stock Instead

Some of the most popular applications of artificial intelligence (AI) reside in workplace productivity software, self-driving cars, and cloud computing.

One use case that is often overlooked is how AI is used in the defense sector. Over the past year, some AI defense technology stocks that have witnessed notable price action include C3. have and BigBear.ai.

Did you notice how I said “stock” instead of company? This is because both C3.ai and BigBear.ai have seen share price action that is disconnected from the underlying fundamentals of their business.

Below, I explain how AI is making waves in the defense industry and detail why I see it Palantir Technologies (PLTR 2.02%) as a top choice at the intersection of AI and the public sector.

AI in the defense industry is a huge opportunity

There are many sophisticated use cases for both defense companies and the military when it comes to using AI. For example, Anduril brings a new phase of innovation to autonomous systems that include robotics, drones and software. Moreover, companies such as Northrop Grumman, Lockheed Martin, Boeing, General dynamicsand RTX specializing in military equipment including satellites, ships, tanks, aircraft and even space exploration.

According to Mordor Intelligence, the total addressable market (TAM) for global AI and analytics in the defense industry is currently worth approximately $9 billion. Mordor expects the market to grow at a compound annual growth rate (CAGR) of 12.5% ​​through 2029, reaching a market size of $16.4 billion by the end of the decade.

Image source: Getty Images.

Palantir’s Progress in the Defense Space

In the first six months of 2024, Palantir’s government business generated $706 million in revenue — or nearly 53% of total sales. When it comes to the defense business in particular, Palantir has made some notable strides this year.

In March, Palantir was awarded a $178 million contract for the military’s TITAN (Tactical Intelligence Targeting Access Node) system. According to the press release, the TITAN ground station is “the military’s next-generation deep sensing capability enabled by artificial intelligence and machine learning (AI/ML).” Palantir joins Northrop Grumman, Anduril and L3Harris Technologies in the TITAN effort that showcases the military’s AI ambitions.

Another big win for Palantir in the defense space comes from the Pentagon’s Project Maven. The Army’s goal with Project Maven was to deepen its machine learning capabilities to bring new insights to combat zones.

Although Alphabet was initially set to lead Project Maven, the company dropped the project following employee protests over his involvement in the project. The Pentagon later awarded Palantir a $480 million deal in May. Palantir’s Maven Intelligent System will help bring new artificial intelligence solutions to the US military in various reconnaissance efforts.

This proved to be a good pickup for Palantir. Following the May deal, Palantir recently received a new five-year, $100 million deal under the Maven umbrella. According to the press release, the Maven Smart System (MSS) will now be extended to all major military branches, including the Army, Air Force, Marine Corps, Navy and Space Force.

Why do I see Palantir as the best choice?

As the charts below indicate, Palantir is in a league of its own when compared to other defense AI companies. Not only are both C3.ai and BigBear.ai generating nowhere near Palantir’s level of sales, but both companies are consistently burning through cash. By contrast, Palantir is consistently profitable. The company should be able to reinvest excess cash into R&D and innovative new platforms, further separating itself from its smaller peers.

PLTR Revenue Data (Quarterly) by YCharts

In addition, Palantir recently entered into an important partnership with Microsoft in terms of defense. Under the agreement, Microsoft and Palantir will integrate their respective AI and analytics capabilities through classified networks and national security protocols, namely with the Department of Defense (DoD).

This should further accelerate Palantir’s deal flow in the public sector, particularly around use cases in the defense landscape. For me, Palantir is much more prolific than C3.ai and BigBear.ai. With sophisticated technology infrastructure becoming less of a priority for the defense world, I think Palantir could be a lucrative opportunity in an under-the-radar pocket of the AI ​​landscape.

Investors looking for high growth businesses in the defense industry may want to consider Palantir stock right now and prepare to hold for the long haul.