There's no denying that artificial intelligence (AI) was all the buzz over the past couple of years, and 2026 is shaping up to be another AI-dominated year. It isn't just Wall Street and Main Street that have the AI bug.
Just last month, the U.S. Department of Defense (DoD), which President Trump rebranded the "Department of War," released its outline for rapid AI deployment, dubbed the AI Acceleration Strategy, with the ultimate goal of making the U.S. military an "AI-first" warfighting force. One of the key tenets of this approach is "rewarding AI-first reconceptions of legacy approaches," according to the memo.
As one of the leading providers of AI systems to the U.S. government, Palantir (PLTR 11.62%) may well be the best way to play AI spending in 2026. Read on to find out why.
Image source: Getty Images.
AI-first
The Pentagon's 2026 budget request included a record $13.4 billion for AI. This marked the first time the DoD included a dedicated line item for AI spending. While certain portions of the budget are allocated to specific war-fighting technologies, there's a great deal of AI-related overlap.
The defense contractors best able to capture some of that spending are "those who can prove AI capability objectively -- through validated skills assessments, demonstrated experience with federal AI frameworks, and systematic quality control that addresses agency risk concerns," according to IT consulting firm CCS Global Tech.
Given Palantir's extensive experience in providing AI systems to the U.S. government, military, and law enforcement agencies, the company has the requisite background to throw its hat in the ring for this year's spending bonanza.
Don't take my word for it. When Palantir reported its fourth-quarter results, revenue climbed 70% year over year to $1.4 billion. Of that, U.S. government revenue rose 66% to $570 million. Moreover, management's forecast for 2026 is telling, guiding for full-year growth of 61%. This shows that Palantir's government revenue isn't just growing but accelerating, thanks to widespread adoption of its proprietary AI tools and systems.
Several items in Palantir's business update are on point. The company partnered with the U.S. Navy on a $448 million deal to launch ShipOS, using AI to modernize shipbuilding and the surrounding supply chain. Palantir also announced the American Tech Fellowship, a rigorous 12-week program that trains veterans and others with "unconventional resumes" to use AIP.
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Key Data Points
Palantir scored another major military contract win last year. The company was awarded a 10-year framework -- which included 75 contracts and a $10 billion cap -- to supply the U.S. Army with software and data processing needs. There were other wins, but you get the point. Palantir has a proven track record of providing state-of-the-art AI systems to various branches of the U.S. military.
Mind you, that's just military spending. Last year, the federal government planned to invest more than $3.3 billion in non-defense AI spending, with additional more planned for 2026. Moreover, President Trump's One Big Beautiful Bill Act allocated more than $1 billion for the federal government's use of AI.
Taken alone, any of these factors would be impressive. Taken together, they paint a picture of why Palantir is uniquely positioned to benefit from U.S. government and military spending over the coming year.
To be clear, the stock isn't cheap, selling for 112 times next year's expected earnings. While that's certainly a premium, Palantir's accelerating growth rate shows why today's heady valuation could be less expensive than it appears.
