Prediction: This hidden opportunity will be the most important part of Palantir’s business in 2025

Last year it seemed like all we could talk about was how Big Tech was changing the world with artificial intelligence (AI). Among the “Magnificent Seven” stocks – Nvidia, Microsoft, Apple, alphabet, Metaplatforms, AmazonAnd Tesla – It quickly became clear that AI would be the next megatrend, and these companies were among its biggest influencers.

However, smaller players have emerged to compete with the big tech companies. Data analysis specialist Palantir Technologies (PLTR 3.92%) could be the newcomer that will actually hold its own in the long run when competing with larger companies.

As of this writing, Palantir is the best-performing stock in the industry S&P 500 for 2024. Much of these gains are due to investor excitement over Palantir’s latest software suite – the Artificial Intelligence Platform (AIP). But despite AIP’s rapid adoption over the last year, many investors are focused on its use cases in the private sector.

But below, I’ll examine a lesser-known opportunity that Palantir is quietly dominating and will likely be the company’s biggest catalyst in 2025.

Military AI is a tremendous opportunity

Over the past two years, investors have been told ad nauseum that AI will lead to greater productivity in the workplace and provide the impetus for breakthrough technologies like humanoid robotics and self-driving cars. However, one area that continues to be overlooked is the role of AI in the defense sector – particularly in military operations.

Analysis from Mordor Intelligence suggests that AI applications in the military include data analytics and robotics automation, which together represent an addressable market of over $60 billion. Below, I’ll detail some of Palantir’s biggest successes in this space to date.

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Palantir dominates this niche

What encourages me about Palantir’s work in the public sector is that the company works with both government agencies and other technology companies that want to participate in defense operations. Earlier this year, Palantir and Microsoft partnered on a campaign to integrate AIP into Microsoft’s Azure cloud infrastructure, particularly in secured environments across the Department of Defense (DOD).

Recently, Palantir entered into another alliance with a major cloud provider, Amazon Web Services (AWS). The partnership represents another use case for Amazon’s Large Language Model (LLM) Claude and shows how it can now be integrated with AIP across defense agencies.

Finally, Palantir recently partnered with Meta. Similar to its deals with Microsoft and Amazon, Meta will leverage Palantir’s capabilities in its LLM (dubbed Llama) as the company looks to make its own splash in the public sector.

A wealth of new possibilities

In addition to partnering with major tech companies, Palantir has also landed a number of lucrative federal contracts in recent months. Notable examples include a multi-year contract worth up to $100 million under Palantir’s Maven contract and a deal with the Naval Information Warfare Center (NIWC) worth nearly $1 billion.

In addition to deals made directly by the government, Palantir has also partnered with interesting players outside of the big tech industry. For example, the company just announced an alliance with Anduril – a startup that develops autonomous systems such as underwater drones. In addition, the company also worked with a leading government consulting firm Booz Allen Hamilton.

The end result

While Palantir has a long-standing foothold in the public sector (and particularly U.S. government agencies), the numerous recently signed contracts and partnerships underscore the company’s continued momentum. They also signal that the government is increasing its investment in AI, with Palantir a consistent beneficiary of this work.

The company’s U.S. government business could see significant acceleration trends next year as its various partnerships and contracts come to fruition.