Palantir Technologies (PLTR 1.66%) has been one of the most controversial stocks of the past few years. The company developed data mining infused with Palantir's proprietary artificial intelligence (AI)-infused decision-making matrix -- called ontology -- to provide governments and businesses with real-time solutions to everyday issues. This differentiates Palantir's products from would-be rivals.
The company just got a huge vote of confidence from the U.S. Department of Defense that could have huge implications for Palantir's future and represent a windfall for the company's shareholders.
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Program of record
In a memo to Pentagon leaders, Deputy Secretary of Defense Steve Feinberg said that Palantir's Maven Smart System would become an official "program of record," according to a report that first appeared in Reuters. This designation will formalize the use of the command-and-control system across all branches of the U.S. military and lock in its long-term adoption. The decision is expected to be implemented by the end of the government fiscal year, which ends Sept. 30.
Maven is a software platform that uploads information from drones, satellites, sensors, radar, and other battlefield intelligence sources. The system then analyzes battlefield data in real time, identifying and prioritizing potential targets -- including buildings, enemy vehicles, and weapons and ammunition stockpiles -- for intelligence analysts to review and act on.
The system is already the preferred battlefield operating system used by the U.S. military for command and control. This designation establishes it as the standard, securing stable, long-term funding from the Pentagon. Feinberg said Palantir's Maven Smart System provides warfighters "with the latest tools necessary to detect, deter, and dominate our adversaries in all domains."
The adoption of Maven continues to grow
The move to make Maven a program of record is the latest in a series of moves signaling the platform's growing adoption by the Department of Defense. The system was deployed to the Middle East and has reportedly "carried out thousands of strikes against Iran over the past three weeks," according to the report.
Palantir was initially awarded a $480 million, five-year contract with the U.S. Army in May 2024 for the Maven Smart System -- then a prototype. Just months later, an addendum increased the value of the contract to as much as $1.3 billion, expanding access to the system to all branches of the U.S. military, including the Army, Navy, Air Force, Marine Corps, and Space Force.
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Key Data Points
This was part of a shift by military leaders to adopt and leverage automation. In a press release at the time, officials wrote, "This enables rapid sensor-to-shooter engagements through a fully digital workflow, leveraging automation and AI-driven tools for advanced target management."
An accelerating opportunity
In the fourth quarter, Palantir's remaining performance obligation -- or contractually obligated sales not yet included in revenue -- soared 62% to $4.2 billion, adding $1.6 billion during the quarter. A big chunk of that increase could be tied to a recent $1 billion software purchase agreement Palantir inked with the Department of Homeland Security (DHS).
For context, Palantir reported sales of $1.4 billion during the fourth quarter, so this was a needle-moving deal. It also helps illustrate the importance of the company's government contracts to its overall success, though Palantir is delivering notable growth on more than one front.
In Q4, while Palantir's total revenue of $1.4 billion grew 70% year over year and 19% sequentially, the details provide important color. U.S. government revenue jumped 66% to $570 million, while U.S. commercial revenue surged 137% to $507 million, driven by robust demand for Palantir's Artificial Intelligence Platform (AIP). Intense focus on the dramatic growth of its commercial business led some investors to lose sight of the importance of its government contracts.
Some investors have been put off by Palantir's stratospheric valuation, which is understandable given that the stock trades at 238 times earnings and 86 times sales. That said, given the company's high double-digit growth and significant prospects, avoiding the stock could be a costly mistake. For investors willing to accept a little risk and additional volatility, an appropriately sized position could generate significant returns in the years to come.
That's why I believe Palantir stock is a buy.
