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The Future of Defense Is Artificial Intelligence (AI). Here’s Why Palantir Is My Top Selection.


Artificial intelligence (AI) performs an vital position within the protection sector, a possibility anticipated to be price $16 billion by the top of the last decade.

It has been practically inconceivable to keep away from the time period “synthetic intelligence” during the last couple of years. But, regardless of the fixed inundation of references to AI, I would wager that almost all occasions you wind up listening to the identical subjects lined again and again.

For instance, what number of occasions have you ever heard in regards to the affect AI could have on office productiveness or how demand for graphics processing models (GPU) continues to soar?

Whereas these are vital functions for AI growth, it is vital for traders to hunt out lesser-known alternatives as nicely. One space the place AI is missed is the defense industry.

Here’s how AI is enjoying an vital position behind the scenes for protection contractors and why Palantir Applied sciences (PLTR -4.88%) is my high decide for this pocket of the AI enviornment.

One of AI’s most missed alternatives

Over the past a number of years, company executives throughout all trade sectors have expressed the significance of investing in digital infrastructure as a way to assist their leaders make extra knowledgeable and environment friendly choices via the ability of knowledge.

Having the ability to take a look at key efficiency indicators and working metrics in an easy-to-read format can assist a enterprise uncover vital insights associated to budgeting, provide chain and logistics, and lots of different use instances.

These similar functions are pertinent to the protection sector. Branches of the army and authorities contractors additionally must carry on high of funds, stock ranges, and logistical protocols.

Whereas the general public sector’s wants could also be extra specialised in comparison with that of a personal enterprise, the market alternative on the intersection of AI and protection is kind of massive.

Mordor Intelligence estimates the worldwide total addressable market for AI defense to be price about $9 billion at the moment, and it ought to develop to $16 billion by 2029. Furthermore, Mordor cites the U.S. as the most important geographic marketplace for AI protection. This can be a good factor for Palantir, as the corporate’s public sector enterprise is targeted on branches of the U.S. army and different Western businesses.

Patches featuring names of the branches of the U.S. military.

Picture supply: Getty Pictures.

How is Palantir successful the AI protection race?

About half of Palantir’s complete income base comes from authorities contracts. Let’s check out some notable deal stream the corporate has received in recent times.

Palantir Government Revenue

Picture supply: Palantir.

A number of years in the past, the Division of Defense (DOD) tapped Alphabet to handle an initiative generally known as Undertaking Maven. Nevertheless, some of Alphabet’s workers considered the corporate’s work with the U.S. army as controversial, in the end resulting in Alphabet leaving the challenge.

Palantir swiftly took benefit of this choice, and it has been managing the Maven contract ever since. After establishing this partnership, Palantir has received different notable offers with the DOD, together with a five-year contract price as much as $480 million with the U.S. Digital and Artificial Intelligence Workplace, in addition to a five-year deal price as much as $100 million with the Military Analysis Laboratory (ARL).

Extra just lately, Palantir introduced a strategic alliance with authorities contractor L3Harris Applied sciences. In accordance with the press launch saying the deal, the partnership between Palantir and L3 Harris will give attention to “a range of ongoing initiatives, together with collaboration on U.S. Military applications like TITAN and efforts aligned with the U.S. Military’s Unified Community Technique.”

This is a crucial level to grasp. Changing into extra aligned with different contractors on present contracts higher positions the corporate for future renewals, thereby strengthening the corporate’s recurring income base.

It is this dynamic that might lend credence to the concept Palantir has yet to really begin scaling and is laying the mandatory groundwork for bigger alternatives down the street.

Is Palantir inventory a purchase proper now?

Palantir inventory has change into more and more costly over the previous couple of months. The AI narrative is undoubtedly fueling progress for the corporate throughout the highest and backside strains. Whereas that is encouraging to see, shares of Palantir have soared to a degree that is disconnected from the underlying fundamentals of the enterprise.

As of this writing, Palantir boasts a market cap of $100 billion — or roughly 43 occasions the corporate’s trailing-12-month gross sales.

PLTR Market Cap Chart

Information by YCharts.

Because the chart above clearly illustrates, Palantir inventory has skilled some outsized valuation expansion over the previous couple of months. Though the corporate is nicely positioned within the AI panorama and may proceed to emerge as a big-time winner, Palantir stock has gotten too pricey.

I do not assume traders must pour into the inventory on the idea that Palantir is a few kind of hidden alternative. The valuation traits above recommend in any other case. The long-term alternative within the marriage of AI and the protection sector over the subsequent a number of years is the extra vital thought.

Palantir stories third-quarter earnings on Nov. 4. I am extra inclined to attend and see what administration has to say throughout the earnings name and what it may imply for the corporate’s long-run prospects.

Suzanne Frey, an government at Alphabet, is a member of The Motley Idiot’s board of administrators. Adam Spatacco has positions in Alphabet and Palantir Applied sciences. The Motley Idiot has positions in and recommends Alphabet and Palantir Applied sciences. The Motley Idiot recommends L3Harris Applied sciences. The Motley Idiot has a disclosure policy.



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