Palantir Technologies (PLTR +1.25%) has been one of the undisputed beneficiaries of the sweeping adoption of artificial intelligence, thanks to its cutting-edge data mining capabilities. Most of the focus has been on the company's commercial business and Artificial Intelligence Platform (AIP), which has been the biggest driver of Palantir's recent growth spurt. However, its government contracts are back in the spotlight this week, as the company struck its next major deal.
Reports emerged late Thursday that Palantir landed a $1 billion software purchase agreement with the Department of Homeland Security (DHS).
Image source: Getty Images.
Carte blanche?
The groundbreaking five-year blanket purchase agreement (BPA), which was published last week, "is to provide Palantir commercial software licenses, maintenance, and implementation services departmentwide," according to a report by Wired.
The deal streamlines the DHS process for procuring software from Palantir, allowing agencies, including Customs and Border Protection (CBP) and Immigration and Customs Enforcement (ICE), to bypass the normal competitive bidding process for purchases of up to $1 billion, according to the report. The BPA includes pre-approved pricing for specific products and services. For context, Palantir generated $1.4 billion in revenue during the fourth quarter, so this deal moves the needle.
Dissent in the ranks
This deal isn't without a measure of controversy. Late last month, after the killing of nurse Alex Pretti in Minneapolis, reports emerged that Palantir employees expressed concerns about the ethics of the company's continuing relationship with DHS, and more specifically, ICE.
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Key Data Points
Palantir has been providing software and services to DHS since 2011, so this isn't a recent development. However, this latest deal represents a significant extension of its relationship with the agency.
In an email to Palantir workers, Akash Jain, Palantir's chief technology officer, addressed the arrangement, saying that this five-year deal could open the door to expanding relationships with additional U.S. government agencies, including the U.S. Secret Service (USSS), the Federal Emergency Management Administration (FEMA), the Transportation Security Administration (TSA), and the Cybersecurity and Infrastructure Security Agency (CISA).
What it means for investors
We don't know exactly when this agreement was signed, so it may already be baked into Palantir's recent financial results. The company's remaining performance obligation (RPO) soared from $2.6 billion in Q3 to $4.2 billion in Q4, an increase of $1.6 billion in just three months. That suggests the recent deal with DHS may already be reflected in Palantir's financial statements, but we'll have to wait until the company's Q1 report to know for sure.
On the other hand, it does illustrate how a single U.S. government contract can add hundreds of millions, or even billions of dollars, to Palantir's backlog, which forms the foundation for the company's future growth. It also helps dispel the notion of a slowdown in AI adoption.
