I'm a big supporter of looking for subtle, less obvious opportunities that hide in the shadows of broader megatrends.
When it comes to artificial intelligence (AI), I think the its applications in the defense sector are underappreciated -- if not misunderstood. Although Palantir Technologies (PLTR -2.52%) has emerged as a darling of the AI revolution, I see its presence in the public sector as a true hidden gem.
Below, I'll break down Palantir's latest win in the defense space and explore why I see this particular deal as such an important catalyst to the company's long-term growth narrative.
Seizing the day
The National Geospatial-Intelligence Agency (NGA) is a security detail within the Department of Defense (DOD). A major responsibility of NGA is running Project Maven, one of the military's leading efforts surrounding AI, machine learning, and cloud computing infrastructure.
Alphabet's Google was a core member of Project Maven back in 2018. However, some employees took issue with Google's involvement -- specifically as it relates to the military's exploration of autonomous defense systems and how they could be used in combat.
After Google chose not to renew its Maven contract in 2019, Palantir swooped in and took over the driver's seat.
Image source: Getty Images.
Huge wins for Palantir
Just like any businesses, the DOD seeks to seamlessly integrate and connect information across its entire enterprise. This initiative is referred to as the Combined Joint All-Domain Command and Control (CJADC2) protocol, and is attached to Project Maven.
There have been some notable wins for Palantir since its involvement in Project Maven and CJADC2.
In May, the U.S. Digital and Artificial Intelligence Office awarded Palantir a five-year deal worth up to $480 million. Per the terms of the deal, Palantir's software will be an important component of the CJADC2 initiative as it relates to broadening the DOD's data analytics capabilities featuring AI and machine learning.
In addition to the deal above, Palantir was also awarded a $33 million contract geared toward onboarding additional vendors into Palantir's existing infrastructure across the DOD.
Most recently, the Army Research Laboratory (ARL) awarded Palantir a five-year deal worth up to $100 million. According to the press release, Palantir will help expand "Maven Smart System access across the military services to include the Army, Air Force, Space Force, Navy, and US Marine Corps."
Do not underestimate Palantir's government business
Since replacing Google in 2019, Palantir has won several deals as part of the Project Maven initiative. The obvious benefit is that these deals are worth up to several hundred million dollars, and therefore can be a lucrative source of revenue for Palantir.
However, the less obvious idea here is that AI should become a more important cornerstone of defense capabilities over time. I think Palantir's consistent awards related to Project Maven serve as a nod of approval from the U.S. military, and could lead to even further defense contracts over the long term.
Image source: Palantir.
From a macro perspective, Palantir's U.S. government revenue is accelerating at a healthy rate -- thanks in large part to these DOD contracts. The company's latest $100 million Maven deal and a new defense partnership with Microsoft are just two catalysts that should ignite even further penetration in the public sector for Palantir.
To me, Palantir's public sector operation is widely overlooked and not fully baked into the long-run valuation opportunity. I'm optimistic that Project Maven will continue to be a source of growth for Palantir over time, and the company's influence in the defense sector more broadly will serve as a tailwind that investors shouldn't underappreciate.
