With Trump's $1.5 Trillion Defense Budget, Palantir Looks Less Like a "Story Stock" and More Like a Strategic Vendor

I can't tell you how many times over the last few years that I've publicly advocated for Palantir Technologies (NASDAQ: PLTR). The data analytics company that has growing influence in both the private sector and in government work has been a huge winner for investors over the years. In fact, a $10,000 investment five years ago would be worth nearly $58,000 today.

Palantir has plenty of detractors, primarily because of its valuation. A forward price-to-earnings ratio of 104 and a forward price-to-sales ratio of 45 is way too rich for many -- and that number has dropped dramatically in the last six months.

And now that the Trump administration has proposed a mammoth $1.5 trillion budget for the Department of Defense in 2027, Palantir appears even more attractive to any investor seeking long-term returns.

Image source: The Motley Fool.

Palantir provides a "program of record"

Palantir has been a key government contractor for years -- its Gotham platform draws in data from hundreds of sources, including satellites, to provide real-time analytics to intelligence agencies and the military in battlefield situations. Gotham uses artificial intelligence (AI) to identify targets and manage drones and satellites based on parameters established by users.

It has a series of U.S. military contracts, including a $10 billion Army contract to provide AI-powered software and platforms, consolidating 75 separate military contracts into one deal that gives the Pentagon and Palantir more flexibility to add or change terms without initiating new contracts -- something that can be very time-consuming in government work.

The Pentagon is also seeking $2.3 billion over the next five years to expand Palantir's Maven Smart System, an AI-powered military platform that identifies and analyzes battlefield data and supports AI-enabled targeting. The request is part of the Pentagon's new $1.5 trillion budget request, a giant jump from its 2026 spending of about $1 trillion.

The military plans to make Maven an "official program of record," according to a Pentagon memo obtained by Reuters, and would provide the military "with the latest tools necessary to detect, deter, and dominate our adversaries in all domains."

The designation as a program of record will streamline the adoption of Maven across all branches of the military and provide Palantir with long-term funding. "It is imperative that we invest now and with focus to deepen the integration of artificial intelligence (AI) across the Joint Force and establish AI-enabled decision-making as the cornerstone of our strategy," Deputy Secretary of Defense Steve ​Feinberg wrote in the memo.

The bull case for Palantir continues

Palantir's contracts with the U.S. military have been an important part of the business and helped it grow into a company with a $330 billion market capitalization. The company has been on an impressive growth spree, with its revenue jumping 130% in the last two years alone.

Data source: Palantir

As the table above shows, Palantir is also rapidly growing its U.S. commercial business, thanks to its Artificial Intelligence Platform (AIP), which adapts Palantir's powerful capabilities into a software platform incorporating large language models to help businesses manage supply chains and inventory and provide market analysis.

Palantir reported closing 180 deals in the fourth quarter worth at least $1 million each, and $4.262 billion in total contract value.

Palantir CEO Alex Karp points to Palantir's software -- honed over years of providing predictions and analysis to the military -- as a key differentiator that sets it apart from other companies in the private sector.

"The strings of text produced by the language models are little without a software architecture that can lend a grammar and structure to the output of these probabilistic prediction engines," Karp said. "The models must be tethered to objects in the real world, and it is that tether, that means of grounding and orientation, that we have built."

"As a result, our U.S. commercial business, once a promising yet mostly theoretical backwater of our company, is now growing at an astonishing rate," he said.

There are a lot of very good companies that serve the defense industry -- Lockheed Martin, RTX, General Dynamics, Northrop Grumman, and others -- but in my eyes, Palantir has them all beat. Palantir isn't building weapons systems, but it's creating the software that allows users to use those systems more effectively. And that gives it a unique, scalable place in the military budget, and makes Palantir stock a no-brainer buy.

Patrick Sanders has positions in Palantir Technologies. The Motley Fool has positions in and recommends Palantir Technologies and RTX. The Motley Fool recommends Lockheed Martin. The Motley Fool has a disclosure policy.