Artificial intelligence (AI) stocks were the gift that kept on giving throughout 2024. While Nvidia and Tesla were scorching hot, there's one company that outperformed all of its peers in spectacular fashion.
Shares of AI software developer Palantir Technologies (PLTR -2.12%) skyrocketed by 357% in 2024 -- handily topping the S&P 500, Nasdaq Composite, and every single other stock in the S&P 500 index.
With 2024 coming to a close, I wanted to break down one last big update that Palantir recently shared with investors. Below, I'll dig into a new contract the company won and detail why this deal is so important for the long-term thesis surrounding Palantir's position in the AI realm.
Palantir is making major moves in the defense space
Palantir sells its software across commercial environments as well as the public sector. With regard to the government, Palantir's primary focus is on defense agencies. Throughout 2024, Palantir won a number of large-scale federal contracts as the military began to increase budget allocations toward AI-driven protocols.
On one side of the equation, Palantir partnered with other private-sector leaders including Microsoft, Meta Platforms, and Amazon on defense-focused deals. With Microsoft, Palantir integrates its Artificial Intelligence Platform (AIP) with the Azure cloud infrastructure currently in place at the Department of Defense. Moreover, the company is also implementing AIP with Amazon Web Services (AWS) and the Anthropic platform across classified environments in defense agencies.
On the other side of the equation, Palantir demonstrates an ability to win public-sector deals entirely on its own, without the help of its big tech cohorts.
In September, Palantir won a deal with the Army Research Laboratory as part of the government's Project Maven initiative. This specific deal is worth up to $100 million over the course of five years, and came on the heels of Palantir winning a separate five-year deal worth up to $480 million with the Pentagon. The Project Maven umbrella has been successful in securing federal contracts for Palantir.
Just last month, news broke that the Naval Information Warfare Center (NIWC) intends to award Palantir a multiyear contract worth almost $1 billion.
Image source: Getty Images.
The company just inked another deal worth hundreds of millions
Similar to its ties with Project Maven, Palantir recently extended its partnership with the Army Vantage program. Following a win with Army Vantage last December, Palantir signed another $400 million deal with the operation. Of note, the deal could be worth up to $600 million based on certain criteria and additional milestones.
Army Vantage is a dedicated movement within the military that is specifically focused on investing in data analytics, machine learning, and AI.
Why are these federal contracts important for Palantir?
The graphs below bifurcate Palantir's revenue base across the commercial and public sectors.
Image source: Palantir.
Through the first nine months of 2024, roughly 55% of Palantir's total revenue stemmed from the public sector. Moreover, as the graphs above indicate, the company's current revenue trajectory in the government segment is higher than its commercial business by a considerable margin. So while investors tend to hone in on Palantir's ability to navigate competition in the private sector, the trends above showcase how important the company's government business is, too.
Despite the lumpy nature of government contracting, Palantir appears to have identified some intriguing ways to ensure continued growth in the public sector thanks to partnerships with big tech and consulting firms such as Booz Allen Hamilton. Furthermore, Palantir's ability to secure major deals on its own speaks volumes to how important the company has become within the Defense Department and related agencies.
As an investor in Palantir, I am encouraged by the company's consistent penetration of the public sector and think even further acceleration is ahead as AI becomes a more prominent area in military operations.
