The dawn of artificial intelligence (AI) has minted more than a few winners, but perhaps the most controversial is Palantir Technologies (PLTR 1.51%). The company originally developed Gotham -- its data mining and AI solution for U.S. government intelligence and law enforcement agencies. However, the company quickly realized that it could offer many of the same services to businesses. It pivoted to capitalize on the opportunity, rolling out Foundry -- its commercial data solution -- and Apollo, Palantir's software management and delivery platform.
The popular narrative quickly developed that Palantir's opportunities as a defense contractor were limited and that the company needed to build out its enterprise book of business to spur future growth. The introduction of Palantir's Artificial Intelligence Platform (AIP) achieved that and more, harnessing the vast potential of generative AI. By integrating with existing systems, AIP can provide real-time solutions using company data, and demand has been off the charts.
However, the company just scored a major win in its U.S. government business that could help usher in the next chapter of Palantir's growth.
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Huge "Impact"
The Defense Information Systems Agency (DISA) is the U.S. Department of Defense (DoD) branch responsible for information technology (IT) and communications combat support. The agency provides guidelines to cloud service providers that host critical DoD data and systems. As such, DISA is also charged with ensuring the security of the cloud services under its purview.
The agency sets out security guidelines that defense contractors must meet or exceed to obtain government certification. DISA lays out four distinct "Impact Levels," each with increasing security requirements. The most stringent level -- Impact Level 6 -- is the highest authorization level and reserved for the most sensitive information, up to and including "Top Secret," having a direct impact on national security. Simply put, this is the gold standard for DoD cloud workloads.
Just last week, Palantir announced that DISA authorized Palantir Federal Cloud Service (PFCS) Forward, "extending PFCS's existing Impact Level 5 and Impact Level 6 Provisional Authorizations to include on-premises and edge deployments." Palantir noted that its entire technology stack, including Apollo, Gotham, Foundry, and AIP, "can be deployed across any environment, from enterprise data centers to the tactical edge, on hardware of the customer's choosing."
This hardware-agnostic approach lets U.S. government users skip the red tape, adopting PFCS under the Federal Risk and Authorization Management Program (FedRAMP) streamlined procurement process -- "Authorize Once, Use Many." This gives U.S. government customers a single approval "that adapts to any architecture ... [from] a large-scale, on-premises data center deployment [to] a small form factor designed to be mobile and survivable in the back of a vehicle."
In short, this authorization means Palantir's entire software stack can be deployed wherever it's needed, even in sensitive, mission-critical settings. This extends beyond traditional data centers, significantly accelerating the ability of military units to deploy AI on the battlefield or elsewhere -- without requiring a specific authorization for each use case or location.
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Key Data Points
What it means for Palantir investors
Palantir has been growing like wildfire. In the fourth quarter, total revenue grew 70% year over year and 19% quarter over quarter to $1.4 billion. But the overall numbers hide the dramatic growth in the company's enterprise segment.
U.S. commercial revenue grew 137% year over year to $507 million. At the same time, Palantir's U.S. government business grew 66% to $570 million. While its government growth rate is already enviable, expanding its DISA authorization removes multiple layers of red tape for existing DoD users, speeding the approval process for using Palantir's tools in additional locations and instances.
In simplest terms, this dramatically increases Palantir's total addressable market, and while it may not rise to the level of game changer, it certainly increases the company's long-term prospects.
There's still the matter of Palantir's valuation to consider. Even after its recent decline, the stock is trading for 73 times next year's expected earnings, a premium by any measure.
That said, Palantir's triple-digit U.S. commercial growth and expanding government pedigree suggest the road ahead is long for the AI and data mining specialist.
