Palantir Won a Big Army Pact. The AI Firm Is ‘in the Sweet Spot,’ Says Analyst.

Palantir licenses AI-powered software to several U.S. government agencies, including the Department of Defense. (Business Wire)

Palantir Technologies received a new U.S. Army contract, and analysts say it’s just the latest reminder of the artificial-intelligence firm’s deepening ties to the federal government.

The Army said Thursday that it had awarded Palantir an Enterprise Agreement worth up to $10 billion over 10 years. The deal consolidates 75 contracts into one, in a bid to accelerate the delivery of commercial software while stripping out contract and reseller pass-through fees.

In the words of Wedbush analysts, it’s a sign that Palantir is “in the sweet spot” to benefit from a flood of federal spending on AI. The firm reiterated an Outperform rating on Palantir stock with a $160 price target.

Under the terms of the agreement, which establishes volume-based discounts, the Army and other Department of Defense agencies have the option to buy Palantir products for up to a decade.

The company licenses software to the U.S. government that uses AI to analyze vast swaths of data. While its commercial business has steadily grown, Palantir remains rooted at the federal level. In December, the company extended a contract for the Army Vantage program worth up to $619 million.

The $10 billion figure for the latest contract is its ceiling value, the maximum the military may spend on the contract, rather than a commitment. Still, the deal is one of the largest disclosed this year by the Army.

It’s more than a passing tailwind for Palantir. Rather, the award signals the federal government’s “strategic focus” on AI, Wedbush argued.

The analysts expect Palantir to continue landing high-priority contracts that are “safe and not at risk of getting cut in this new spending climate.” In their view, the data-analytics company is well-positioned for a disciplined spending environment, which will ultimately spur growth as Palantir gets “a bigger seat at the table global.”

Wedbush has been persistently bullish on Palantir, maintaining an Outperform rating since initiating coverage on the shares more than two years ago; the initial target price in July 2023 was $25.

There’s no way to sugarcoat the stock’s cult following of retail investors. A dedicated community on Reddit has amassed more than 100,000 followers, where enthusiasts regularly sing Palantir’s praises, arguing the “AI revolution” will usher in more gains.

Analysts are more cautious. Among 30 firms polled by FactSet, 18 rate the stock at Hold, while eight rate it at Buy or the equivalent, and four are at Sell.

The stock’s lofty valuation has remained a concern, as has its volatility. As of Thursday, Palantir had a three-year beta of 1.585. Any value greater than 1 indicates the stock tends to more dramatically in both directions than the S&P 500.

Shares fell 1.4% to $156.16 on Friday. The S&P 500 and tech-heavy Nasdaq Composite were down 1.3% and 1.7%, respectively.

Wedbush Fund Advisers launched the Dan IVES Wedbush AI Revolution exchange-traded fund last month, which includes Palantir as well as the Magnificent Seven tech stocks.

Write to Mackenzie Tatananni at mackenzie.tatananni@barrons.com