Palantir Secures Major Defense Contract Amid Valuation Debate

Palantir Technologies has further cemented its position as a critical technology partner for the U.S. government. The data analytics firm recently won a substantial contract with the U.S. Navy, valued at up to $448 million. This deal arrives as market participants remain sharply divided over the company's premium valuation, despite its continued delivery of strong operational results.

The stock's extreme valuation remains the central point of contention among analysts. Trading at a price-to-sales multiple of approximately 160, Palantir stands as the most expensive equity within the S&P 500 index by a significant margin. For context, the next highest, AppLovin, trades at a multiple of 57.

This disparity fuels widely divergent expert opinions. Some analysts have issued price targets as high as $255 per share. In contrast, Rishi Jaluria of RBC Capital Markets warns of potential downside, setting a target of just $50—a level that would imply a drop of over 70% from current prices. These concerns persist even as Palantir reported impressive revenue growth of 47% over the past twelve months.

"ShipOS" Initiative to Accelerate Submarine Production

The newly awarded contract centers on a strategic software initiative named "ShipOS." This platform is designed to streamline and accelerate the production of nuclear-powered submarines, a critical priority for the Navy. Manufacturing rates for the Virginia and Columbia classes have recently fallen behind schedule, creating an urgent need for efficiency gains.

Should investors sell immediately? Or is it worth buying Palantir?

Palantir will deploy its Foundry and artificial intelligence platforms across two major shipbuilders and more than 100 suppliers. The integration aims to optimize the complex supply chain management involved in naval construction. Market observers view this contract as strategically significant, deeply embedding Palantir within the U.S. defense industrial base. Louie DiPalma, an analyst at William Blair, sees potential for this to become one of the company's largest programs, especially with possible expansions to other naval platforms already under discussion.

Diversification into Critical Infrastructure

Beyond defense, Palantir is actively pursuing diversification. The company's "Chain Reaction" initiative positions its software as a potential operating system for American AI infrastructure. In partnership with firms like NVIDIA and utility company CenterPoint Energy, the project seeks to address looming power supply bottlenecks for data centers.

This move taps into a substantial growth market. Electricity demand in the Houston area alone is projected to double by the mid-2030s, driven largely by the computing needs of artificial intelligence. Securing a role in managing this energy infrastructure represents a significant commercial opportunity.

Palantir shares are currently trading near €161, having advanced nearly 120% since the start of the year. Whether this momentum can be sustained will largely depend on the company's ability to justify its ambitious valuation through the continued execution of major contracts, such as the one with the Navy, and its expansion into new commercial verticals.