What happened

Shares of Palantir Technologies (PLTR 0.51%) popped higher on Thursday, defying the general market downtrend. The stock jumped as much as 5.1%, but was up 4.8% to close out the day.

The catalyst that sent the machine learning software and data mining specialist higher was news the company will partner with defense contractor Lockheed Martin (LMT 0.29%) on projects for the U.S. Navy.

So what

Palantir announced it will work with Lockheed Martin on projects "focused on delivering modern software to support todays and tomorrows Navy combat systems by leveraging Lockheed Martin's deep technical experience, and Palantir's Apollo platform." In plain language, the partnership will work to modernize combat systems used by the Navy's surface fleet.

Palantir's Apollo is a software-as-a-service (SaaS) platform and continuous delivery system.that provides automation and delivery infrastructure for applications. This allows users to roll out updates across a variety of services simultaneously, monitor developer releases, resolve dependencies, and deploy new upgrades or versions. This is all done automatically, without the need for user intervention.

"The Navy needs capability to update software at the edge rapidly and securely to address ever-evolving threats," said Joe DePietro, vice president and general manager for Naval Combat & Missile Defense Systems at Lockheed Martin. "Lockheed Martin is investing in skills, capabilities, tools, and infrastructure to deliver the best software to the warfighter efficiently and affordably." He went on to note that Apollo was "central to these efforts."

Now what

Palantir has a long history of working with U.S. government and military agencies, deploying software and data mining solutions. It's the company's expansion into enterprise that holds the key to its future success, though that business is currently weighed down by a strong dollar and macroeconomic headwinds.

The stock has never been cheap in terms of traditional valuation metrics. Even after the stock's bear market-induced 80% haircut, Palantir Technologies still sells for roughly 8 times next year's sales, when a reasonable price-to-sales ratio is between 1 and 2. On the other hand, major government contracts continue to flow even during economic downturns, as this new project shows.