Can AI Defense Contracts Push Palantir Shares Higher?
Palantir Technologies Inc. (NASDAQ: PLTR) continues to delight shareholders and confound its critics.
The company’s latest earnings report shows a company that’s been hitting on all cylinders for quite some time. In the last three years, Palantir has delivered:
- Revenue growth of over 90%
- Net income of over 216%
- Operating income over 220%
These are the metrics that Palantir bulls use to justify the company’s lofty valuation and massive stock price growth in the past three years. One of the company’s primary customers is the U.S. government, particularly the U.S. Department of Defense (DoD).
Originally, this revenue took the form of pilot programs, which may be referred to as “proof of concept” contracts. However, with the explosive demand for artificial intelligence (AI) over the past three years, Palantir’s AIP (Artificial Intelligence Program) has turned the company into an entrenched incumbent.
Multiple branches of the U.S. military now use the AIP program in contracts that ensure multi-year deployments. But even that may undersell the company’s future growth.
Leaning Into a More Efficient Pentagon
Part of the bear case for Palantir is that government contracts don’t always materialize in their expected timeframe. That was the case for BigBear.ai Holdings Inc. (NYSE: BBAI) last week. BBAI stock moved significantly lower after it reported that its year-over-year (YOY) revenue declined by $32.5 million because of disruptions to its contract with the U.S. Army.
The company also lowered its full-year guidance for the same reason.
Compare that to the 53% YOY growth Palantir notched in its government business, and you see why Palantir shareholders remain bullish. The recent passage of the One Big Beautiful Bill will increase the Department of Defense (DoD) budget to over $900 billion. Of that, $150 billion will be allocated for disruptive defense technologies.
That number balloons to $320 million when the Department of Homeland Security (DHS) is included. This includes the company’s significant contracts with the Immigration and Customs Enforcement (ICE) division. Palantir is a long-time contractor for DHS, and its comprehensive, cloud-based law enforcement platform makes it an entrenched incumbent.
That incumbent status was confirmed by the U.S. Army, which combined 75 contracts into one $10 billion award to Palantir. While skeptics will point out that this isn’t “new” revenue for the company, the bulls will counter that the removal of contract fees will allow Palantir to expand its bottom-line growth over the life of the contract.
Commercial Growth: Palantir's Next Frontier
It’s not going to happen anytime soon, but there is a possibility that, by the end of the decade, Palantir may generate more revenue from the commercial side of its business than it does from its government contracts.
In the company’s August earnings report, overall commercial revenue was 44% of its total.
In the United States, the percentage was slightly lower at 41%.
However, investors should be careful not to look at this number in a vacuum.
To begin with, it’s significantly higher than it was in prior years.
Second, Palantir is growing its commercial business at a faster rate than its government business.
The Path to $200 May Take Time
PLTR stock has been one of the hottest technology stocks since late 2024. However, a drop of approximately 40% in early 2025 interrupted that. However, that turned out to be a solid buying opportunity. The stock is finding support around its 20-day simple moving average (SMA), which currently sits around $168.50.
As the market heads into what is typically its worst month, the MACD line is slightly above its signal line, showing declining positive momentum. It also suggests that PLTR stock may move lower in the short term. Investors looking for a dip to buy can look for near-term support at the following areas:
- $168–169: 20-day SMA zone; strong short-term support.
- $160–162: Previous consolidation zone from July–August 2025.
- $150–152: March–June 2025 breakout area; secondary support if a stronger pullback occurs.
Bullish investors have been eyeing $200 as a "large number” price target. That’s a price target backed by Dan Ives of Wedbush. However, in the short term, the bulls may have to decide if an area around $190, which would make a new all-time high (ATH) is enough to get involved.
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