Why Palantir Stock Jumped 13% in May

Palantir Technologies (NASDAQ: PLTR) stock rose 13% in May, according to data provided by S&P Global Market Intelligence. Market sentiment turned positive for the artificial intelligence (AI) stock after a report that the U.S. government is going to invest in drone companies.

A government partner

Palantir isn't a drone company, but its products are heavily used by the defense industry and the U.S. government. It has specialized drone technology that's integrated into its platform, which is one element of its connected network of data sets, and its Defense Solutions are used by the U.S. Army, the U.S. Air Force, and the U.S. Navy. The company's Gotham platform creates a custom ontology, or map of different data sets, to unify them and help management make critical decisions, and it's used by defense agencies as well as intelligence and law enforcement.

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It recently announced a partnership with Ondas, which automates and digitizes systems for the defense industry. One of its products is an autonomous drone system that is used for reconnaissance and surveillance.

At the end of May, The Wall Street Journal reported that the U.S. government was in talks with several drone companies about investing in them for the purpose of increasing domestic production and lowering costs. Some of the companies named include Performance Drone Works and Unusual Machines.

While the report didn't reference Palantir directly, investing in this industry could be beneficial for Palantir, which is highly connected to government drone use. The market sees this as a positive development for the company.

More than drones

The stock's jump was at the end of the month, masking the continued downward pressure on the stock for nearly the entire May, and Palantir stock is still down 14% year to date.

This is after the stock's stunning ascent over the past few years as one of the major names associated with AI. Palantir continues to demonstrate incredible growth, including an 85% increase in revenue in the 2026 first quarter and more than doubling of the U.S. business -- both accelerations. The U.S. commercial business is driving growth, up 133%, with a 112% increase in remaining deal value. Palantir is also highly profitable, with an adjusted operating margin of 60% and earnings per share of $0.34, up from $0.08 last year.

However, Palantir stock has been susceptible to falling due to its high valuation. It trades at 73 times forward, 1-year earnings even at the lower price.

At these levels, Palantir is still liable to fall further if it makes any missteps.

Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Ondas and Palantir Technologies. The Motley Fool has a disclosure policy.