Palantir vs. Lockheed Martin: Which Defense Stock Wins the Next 5 Years?

Two companies capture the past and future of defense investing. Palantir Technologies (NASDAQ: PLTR) is the AI software upstart that has soared so far it recently passed Lockheed Martin (NYSE: LMT) in total market value, while Lockheed is the century-old prime contractor that builds the jets and missiles themselves. Both are riding somewhat of a wave of rising military spending, so which one wins over the next five years? At today's prices, the answer comes down to a single question: How much are you willing to pay for growth?

The case for Palantir

Palantir is the growth engine of the two by a mile. Its software helps militaries turn oceans of data into fast decisions, and it has landed marquee wins such as the Maven Smart System (MSS) now used by the Pentagon and NATO. In short, MSS is an AI-powered command-and-control software platform developed by the U.S. Department of Defense and Palantir.

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Earnings are exploding, with per-share profit forecast to jump roughly 78% this year, and its commercial business is compounding alongside its government work. If artificial intelligence becomes the nerve center of modern warfare, Palantir is positioned to be its brain.

The catch is the price. Even after falling more than 25% this year, Palantir trades at roughly 90 times forward earnings, a valuation that assumes years of flawless, blistering growth. At that multiple, the stock can post terrific business results and still fall if growth merely slows, which is exactly the volatility investors have already felt. You're paying a premium today for a future that has to arrive on schedule.

The case for Lockheed Martin

Lockheed is the opposite profile: modest growth at a modest price. It trades near 20 times earnings, pays a dividend yielding around 2%, and buys back stock, so shareholders get paid while they wait. Its backlog is enormous and funded, demand for the F-35 fighter remains strong, and it is one of a dozen vendors selected for the Golden Dome missile-defense initiative, worth up to $3.2 billion in aggregate agreements, with plans to demonstrate a space-based interceptor by 2028. With global defense budgets climbing toward record levels, Lockheed's revenue is dependable in a way software contracts are not.

The downside is the ceiling. Sales are growing only around 5% a year, and Lockheed has a history of costly charges on complex programs that can dent earnings. This is a steady compounder, not a rocket.

Which wins at these prices?

Here's my analytical read. Over five years, Palantir can only win if it sustains extraordinary growth and holds onto a rich valuation, and doing both for that long is a tall order that history rarely rewards. Lockheed, by contrast, needs far less to go right. At 20 times earnings with a dividend, a funded backlog, and a once-in-a-generation surge in defense spending behind it, it offers a more reliable path to solid returns with much less downside if the mood turns.

So at today's prices, I lean toward Lockheed Martin as the better risk-adjusted buy. You're paying a fair price for durable, government-funded growth plus income, rather than betting that a stock keeps defying gravity. That said, I want to be balanced: If Palantir's growth stays torrid and AI truly reshapes defense, its higher ceiling could let it win on absolute returns.

It's the boldest bet for investors who can stomach the volatility and the valuation. This is a classic contest between a cheap, dependable compounder and an expensive, explosive grower. For most investors focused on risk and reward at current prices, Lockheed Martin is the sturdier choice for the next five years, backed by real budgets and a real dividend.

Micah Zimmerman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Palantir Technologies. The Motley Fool recommends Lockheed Martin. The Motley Fool has a disclosure policy.