Some of the most common applications of artificial intelligence (AI) can be found in workplace productivity software, self-driving cars, and cloud computing.
One use case that is often overlooked is how AI is being used in the defense sector. Over the past year, a few AI defense tech stocks that have seen notable price action include: C3.ai And BigBear.ai.
Did you notice I said “stock” instead of company? That’s because both C3.ai and BigBear.ai have seen price action that is disconnected from the underlying fundamentals of their businesses.
Below I explain how AI is making waves in the defense industry and why I Palantir Technologies (NYSE: PLTR) as the best choice at the intersection of AI and the public sector.
AI in the defense industry is a huge opportunity
There are many advanced use cases for defense contractors and militaries when it comes to leveraging AI. For example, Anduril is bringing a new phase of innovation to autonomous systems with robotics, drones, and software. Additionally, companies like Northrop Grumman, Lockheed Martin, Boeing, General dynamicsAnd RTX specialize in military equipment, including satellites, ships, tanks, aircraft and even space exploration.
According to Mordor Intelligence, the total addressable market (TAM) for global AI and analytics in the defense industry is currently worth approximately $9 billion. Mordor estimates that the market will grow at a compound annual growth rate (CAGR) of 12.5% through 2029, reaching a market value of $16.4 billion by the end of the decade.
Image source: Getty Images.
Palantir’s Advances in Defense
In the first six months of 2024, Palantir’s public business generated $706 million in revenue — or nearly 53% of total revenue. Palantir has made particularly notable strides in defense this year.
In March, Palantir was awarded a $178 million contract for the Army’s Tactical Intelligence Targeting Access Node (TITAN) system. According to the press release, the TITAN ground station is “the Army’s next-generation deep-sensing capability, powered by artificial intelligence and machine learning (AI/ML).” Palantir joins Northrop Grumman, Anduril, and L3Harris Technologies in the TITAN project, which focuses on the military’s AI ambitions.
Another big win for Palantir in the defense sector comes from the Pentagon’s Project Maven. The military’s focus with Project Maven was to deepen its machine learning capabilities to bring new insights into the battlefield.
Although Alphabet was initially set to lead Project Maven, but the company pulled out of the project after employee protests over its involvement in the project. The Pentagon then awarded Palantir a $480 million deal in May. Palantir’s Maven Smart System will help bring new AI solutions to the U.S. military for various reconnaissance efforts.
This has proven to be a good buy for Palantir. Following the May deal, Palantir recently secured a new five-year, $100 million deal under the Maven umbrella. According to the press release, the Maven Smart System (MSS) will now be expanded to all major military branches, including the Army, Air Force, Marine Corps, Navy, and Space Force.
Why do I see Palantir as the best choice?
As the charts below indicate, Palantir is in a class of its own when compared to other defense AI companies. Not only do C3.ai and BigBear.ai not generate nearly as much revenue as Palantir, but both companies are consistently burning cash. Palantir, on the other hand, is consistently profitable. The company should be able to reinvest its excess cash into research and development and new innovative platforms, further differentiating it from its smaller peers.
PLTR Revenue (quarterly) data by YCharts
Additionally, Palantir recently entered into a major partnership with Microsoft on defense. Under the deal, Microsoft and Palantir will integrate their respective AI and analytics capabilities into classified networks and national security protocols, namely with the Department of Defense (DoD).
This should further accelerate Palantir’s deal flow in the public sector, particularly in terms of use cases in the defense landscape. To me, Palantir is far more prolific than C3.ai and BigBear.ai. Given that cutting-edge technology infrastructure is no less of a priority for the defense world, I think Palantir could be a lucrative opportunity in an under-the-radar area of the AI landscape.
Investors looking for fast-growing companies in the defense industry can consider Palantir stock now and prepare for the long term.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Adam Spatacco has positions in Alphabet, Microsoft, and Palantir Technologies. The Motley Fool has positions in and recommends Alphabet, Microsoft, and Palantir Technologies. The Motley Fool recommends C3.ai, L3Harris Technologies, Lockheed Martin, and RTX and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.