Some of the more mainstream artificial intelligence (AI) applications reside in workplace productivity software, self-driving cars, and cloud computing.
One use case that often goes overlooked is how AI is used in the defense sector. Over the last year, some AI defense tech stocks that have witnessed some notable price action include C3.ai and BigBear.ai.
Did you notice how I said “stock” instead of company? That’s because both C3.ai and BigBear.ai have seen stock price action that’s disconnected to the underlying fundamentals of their business.
Below, I explain how AI is making waves in the defense industry and detail why I see Palantir Technologies (NYSE: PLTR) as the top choice at the intersection of AI and the public sector.
AI in the defense industry is an enormous opportunity
There are many sophisticated use cases for defense companies and militaries alike when it comes to leverage AI. For example, Anduril is bringing a new phase of innovation to autonomous systems featuring robotics, drones, and software. Moreover, companies such as Northrop Grumman, Lockheed Martin, Boeing, General Dynamics, and 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 around $9 billion. Mordor estimates that the market will grow at a compound annual growth rate (CAGR) of 12.5% until 2029, reaching a market size of $16.4 billion by the end of the decade.
Palantir’s progress in the defense space
Through the first six months of 2024, Palantir’s government business generated $706 million in revenue — or nearly 53% of total sales. When it comes to defense business in particular, Palantir has made some notable progress this year.
Back in March, Palantir was awarded a $178 million contract for the Army’s Tactical Intelligence Targeting Access Node (TITAN) system. Per the press release, the TITAN ground station is the “Army’s next-generation deep-sensing capability enabled by artificial intelligence and machine learning (AI/ML).” Palantir joins Northrop Grumman, Anduril, and L3Harris Technologies in the TITAN effort featuring the Army’s AI ambitions.
Another big win for Palantir in the defense space stems 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 combat areas.
Although Alphabet was initially set to lead Project Maven, the company dropped out of the project following employee protests over its involvement in the project. Subsequently, the Pentagon awarded Palantir with a $480 million deal back in May. Palantir’s Maven Smart System will help bring new AI solutions to the U.S. military as it pertains to various reconnaissance efforts.
This has proven to be a good pickup for Palantir. Following the deal from May, Palantir was recently awarded a new five-year $100 million deal under the Maven umbrella. Per the news release, the Maven Smart System (MSS) will now be extended across all major military branches including the Army, Air Force, Marine Corps, Navy, and Space Force.
Why do I see Palantir as the top choice?
As the charts below indicate, Palantir is in a league of its own when benchmarked against other defense AI companies. Not only are both C3.ai and BigBear.ai not generating anywhere near the level of sales of Palantir, but both companies are also consistently burning cash. By contrast, Palantir is consistently profitable. The company should be able to reinvest its excess cash into research and development and new innovative platforms, thereby further separating itself from its smaller counterparts.
On top of that, Palantir recently forged an important partnership with Microsoft as it relates to defense. Per the deal, Microsoft and Palantir will be integrating their respective AI and analytics capabilities throughout 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, specifically as it pertains to use cases in the defense landscape. To me, Palantir is far more prolific than C3.ai and BigBear.ai. Considering sophisticated technological infrastructure isn’t becoming any less of a priority for the defense world, I think Palantir could be a lucrative opportunity in an under-the-radar pocket of the AI landscape.
Investors looking for high-growth businesses in the defense industry may want to consider Palantir stock right now and prepare to hold for the long run.
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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.
Forget BigBear.ai and C3.ai: Buy This Artificial Intelligence (AI) Defense Stock Instead was originally published by The Motley Fool
