Image source: Getty Images. <\/p>\n
As of the closing bell on Aug. 22, shares of Palantir have soared by 110% so far this year — an eye-popping rally in what has otherwise been a choppy year for the market. At first glance, you might assume Palantir stock is already priced to perfection. Well, investors may want to reconsider.<\/p>\n
Below, I’ll break down Palantir’s latest government contract and explain why this deal is a game-changer for the company’s growth trajectory at the intersection of AI and national defense.<\/p>\n
In the second quarter, Palantir generated $553 million in government revenue — marking 49% growth year over year. Digging deeper, the company’s public sector growth from U.S. agencies alone surged 53%, underscoring its increasingly central role in America’s defense<\/a> and intelligence ecosystem.<\/p>\n<\/p>\n This momentum shouldn’t come as a surprise. Earlier this year, Secretary of Defense Pete Hegseth outlined a vision called the Software Acquisition Pathway (SWP) — a strategy focused on quick deployment of the most effective enterprise platforms across the Pentagon.<\/p>\n Palantir has been a clear beneficiary of the SWP. The company’s Maven Smart System (MSS) contract expanded by $795 million, bringing the total deal value close to $1.3 billion. Furthermore, Palantir recently secured a new agreement with Immigration and Customs Enforcement (ICE) — broadening its footprint beyond the battlefield.<\/p>\n Perhaps the most underappreciated catalyst, however, is Palantir’s ability to leverage its U.S. partnerships into opportunities with allies. Earlier this year, Palantir signed a contract with NATO — a move that could lay the foundation to international growth as defense spending ramps up globally.<\/p>\n Last month, the U.S. Army awarded Palantir a sweeping new Enterprise Agreement (EA) designed to create a “comprehensive framework for the Army’s future software and data needs.” Strip away the corporate jargon, and the scale of this deal becomes jaw-dropping.<\/p>\n This is not your typical government contract focused on a single use case. Instead, the Army is consolidating 75 separate contracts under one umbrella, effectively making Palantir the go-to provider across its data and software ecosystem.<\/p>\n The DOD took this action deliberately: to reduce procurement times, streamline operations, and unify its digital infrastructure — and it chose Palantir to execute that mission.<\/p>\n The numbers alone are staggering. In total, the EA is valued at up to $10 billion over the next decade — making it one of the most lucrative contracts in Palantir’s history. More importantly, it signals that the U.S. Military sees Palantir not as a niche defense specialist, but as a strategic partner trusted to drive the DOD’s next generation of data-driven operations.<\/p>\n It’s no secret that Palantir stock has gone parabolic during the AI revolution. But looking only at percentage gains and share price doesn’t reveal much about the company’s true valuation. To get perspective, investors need to benchmark Palantir against its peers.<\/p>\n As the chart above shows, the price-to-sales (P\/S) ratio among leading software-as-a-service (SaaS) companies has fluctuated throughout the AI boom. With a P\/S of 116, Palantir stands out as a clear outlier. Not only does it trade at a hefty premium compared to its peers, but its valuation expansion has been far more pronounced than the comparable businesses above.<\/p>\n Some bulls may contest that Palantir deserves this premium thanks to its industry-leading Rule of 40 score. Just as critical, a long-term agreement such as the Army deal explored above provides Palantir with a high degree of revenue visibility in one of the stickiest markets: government contracting — giving the company durable growth runway that few of its rivals can match.<\/p>\n Nevertheless, investors should remain cautious of these views. One of the company’s closest private-sector peers, Databricks, recently raised capital at a valuation roughly one-third of Palantir, despite operating at similar scale.<\/p>\n The bottom line is that Palantir stock remains historically expensive. And even the magnitude of this new Army contract, while transformative, isn’t enough to justify blindly pouring money into the stock.<\/p>\n With that said, Palantir has proven to be a winner in the AI software realm — particularly in a highly strategic market such as defense tech, where the company has become so deeply embedded that it essentially serves as the backbone of the Pentagon’s digital infrastructure.<\/p>\n Although the company’s valuation has gotten frothy, I think Palantir does deserve some form of a premium. To me, the most prudent approach is to build a position in Palantir through dollar-cost averaging (DCA) — buying shares at various price points over the course of a long-term time horizon and holding on so long as conviction remains high.<\/p>\n Before you buy stock in Palantir Technologies, consider this:<\/p>\n The Motley Fool Stock Advisor analyst team just identified what they believe are the\u00a010 best stocks<\/a> for investors to buy now\u2026 and Palantir Technologies wasn\u2019t one of them. 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The Motley Fool has positions in and recommends Atlassian, Cloudflare, CrowdStrike, Datadog, MongoDB, Palantir Technologies, ServiceNow, and Snowflake. The Motley Fool has a disclosure policy<\/a>.<\/p>\n<\/a> PLTR PS Ratio<\/a> data by YCharts<\/a> <\/p>\n