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Expanding the Reasons to Admire Palantir's Shares,boasting an additional 400 million motivations.

Palantir has secured a significant contract with the Army Vantage initiative.

U.S. Military Personnel Engaged in Computer Activities.
U.S. Military Personnel Engaged in Computer Activities.

Expanding the Reasons to Admire Palantir's Shares,boasting an additional 400 million motivations.

AI stocks continued to shine in 2024, with companies like Nvidia and Tesla performing exceptionally well. However, it was AI software developer Palantir Technologies that truly stood out, increasing its shares by an impressive 357%. This surge easily surpassed the performance of all other stocks in the S&P 500 index, including the S&P 500 and Nasdaq Composite themselves.

As 2024 drew to a close, it was worth noting one significant update shared by Palantir with its investors. Below, we delve into a recent contract the company secured and explain why this deal is crucial for Palantir's long-term position in the AI sector.

Palantir making significant progress in defense sector

Palantir sells its software in both commercial and public sectors, with a primary focus on defense agencies in the latter category. Throughout 2024, Palantir landed several significant federal contracts as the military incrementally increased its budget allocation towards AI-driven protocols.

Collaborating with other private-sector giants like Microsoft, Meta Platforms, and Amazon, Palantir integrated its Artificial Intelligence Platform (AIP) with the Azure cloud infrastructure at the Department of Defense. Additionally, the company also implemented AIP with Amazon Web Services (AWS) and the Anthropic platform within classified environments in defense agencies.

On its own, Palantir managed to secure several public-sector deals without relying on its tech counterparts.

In September, Palantir secured a deal worth up to $100 million with the Army Research Laboratory as part of the government's Project Maven initiative. This was soon followed by a separate five-year deal worth up to $480 million with the Pentagon. Project Maven has been instrumental in securing federal contracts for Palantir.

Most recently, news emerged of the Naval Information Warfare Center (NIWC) intending to award Palantir a multiyear contract valued near $1 billion.

Palantir signs another massive deal

Palantir's Income Divided by Business Segments

In a fashion similar to its Project Maven ties, Palantir recently extended its partnership with the Army Vantage program. Following a victory with Army Vantage in December the previous year, Palantir inked another $400 million deal with the operation. This deal had the potential to reach up to $600 million, subject to certain conditions and additional milestones.

Army Vantage is a specific initiative within the military, dedicated to investing in data analytics, machine learning, and AI.

Why are these federal contracts crucial for Palantir?

The graphs below illustrate Palantir's revenue split between commercial and public sectors.

By the end of the first nine months of 2024, approximately 55% of Palantir's total revenue stemmed from the public sector. The graphs above indicate that Palantir's current revenue growth in the government segment is significantly higher than its commercial business. Investors often focus on Palantir's ability to compete in the private sector, but the trends above highlight the importance of its government business as well.

Contracts in the public sector can be irregular, but Palantir seems to have identified strategies for continued growth in this sector thanks to partnerships with big tech and consulting firms like Booz Allen Hamilton. Furthermore, Palantir's capability to secure major contracts independently highlights its increasing importance within the Defense Department and associated agencies.

As an investor in Palantir, I am optimistic about the company's consistent penetration of the public sector and believe that further acceleration is on the horizon as AI becomes increasingly prevalent in military operations.

After securing several significant federal contracts in 2024, Palantir is now actively investing its revenues in improving its AI capabilities. This strategic move is expected to strengthen its position in the defense sector, potentially leading to more lucrative deals in the future.

Recognizing the significance of these federal contracts, many investors are now considering Palantir as a viable option for their finance portfolios, with a focus on long-term growth in the AI sector.

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