You won’t find the most valuable national security contractor of them all on the standard lists of defense industry stocks.
That would be Palantir, a rapidly growing company inspired by J.R.R. Tolkien’s “The Lord of the Rings.”
The S&P 500 defense and aerospace sector contains big publicly traded companies like GE Aerospace, Boeing, General Dynamics, Northrop Grumman, Lockheed Martin and RTX (formerly Raytheon Technologies). They make the weapons, ammunition and equipment that a nation needs to fight a war: missiles, bombs, tanks, rockets, aircraft, ammunition, ships, radar systems and other tangible things.
Then there’s Palantir. It doesn’t make things. That may be why it’s not included in that august group of military companies. Instead, Palantir is a software and data analysis firm that uses time-honored technologies like data-mining and newer ones like artificial intelligence, for national security purposes. It has benefited tremendously — and, some critics say, exorbitantly — from the A.I. exuberance sweeping through the stock market.
The numbers are astounding. The market values Palantir at more than $400 billion — a sum that dwarfs those conventional military companies, though they have far greater revenue. For example, in the stock market’s eyes, Lockheed Martin is worth about 75 percent less than Palantir — although Lockheed, a global giant in the manufacturing of aircraft, missiles, helicopters and spacecraft, had about 19 times the revenue of Palantir in their most recent fiscal years, according to FactSet, a financial data firm.
That Palantir plays a growing and important role in national security operations is beyond question. In its infancy, the company was nurtured by a venture capital firm founded by the Central Intelligence Agency. It made news this year by helping the Trump administration collect and compile personal information on millions of Americans. It has gotten attention for its work for U.S. military and intelligence agencies, police forces, U.S. Immigration and Customs Enforcement, as well as many corporations and allied governments. Palantir’s executives say proudly that they are committed to ensuring the military supremacy of U.S., British, Israeli, Ukrainian and other friendly forces.
But Palantir has also been in the news for reasons that its executives emphatically dislike. Skeptical investors, among them Michael Burry, the hedge fund manager profiled in the movie, “The Big Short,” are betting that while Palantir is churning out enormous profits, it is nevertheless grossly overvalued by the market and its shares will soon fall.
Mr. Burry placed a similar bet against Nvidia, which makes many of the advanced chips that power A.I. Nvidia has been the chief beneficiary of the A.I. boom, with a market valuation that, for a short while recently, surpassed $5 trillion. Nvidia hasn’t responded publicly.
Not so, Palantir. In a recent interview on CNBC, its chief executive, Alex Karp, described Mr. Burry’s bets against Palantir as “batshit crazy.”
‘Completely Anti-Woke’
Peter Thiel, a founder of PayPal and an early Trump supporter, was also one of Palantir’s founders and remains its chairman. The company’s earnings calls with Wall Street analysts aren’t confined to the discussion of revenue and growth prospects that other companies favor.
Instead, there is, routinely, a sprinkling of bellicose, patriotic comments that stress Palantir’s military bona fides.
“We remain deeply committed to our founding mission of supporting the U.S. government,” Ryan Taylor, the company’s chief revenue officer, said this month. “We remain focused on delivering the most advanced defense capabilities in the world to the U.S. government and internationally to our allied partners around the world.”
Or this, by Mr. Karp, who said later in the call that the world should marvel at Palantir’s fabulous profits, military excellence and pugnacity. The company, he said, “stood by the American war fighter, marine special operators, people in clandestine services who stood up for our right of free speech.” It was, he said, “really the first company to be completely anti-woke.”
Much of its success, he said, comes from “making the American war fighter fight the way the American war fighter is born to fight.”
Geopolitical crises are a problem for most of us. For Palantir, they are the company’s bread and butter. In that same earnings call, Shyam Sankar, the company’s chief technology officer, who in June became a lieutenant colonel in the Army Reserve, said: “America is involved with three conflicts right now in the world, from Europe, the Middle East, and in our own hemisphere right now. And things are getting a little spicy.” The conflicts provide “opportunities” for Palantir.
So What Is It Really Worth?
In the stock market, the company’s growth has been meteoric. Named for the spherical objects used in the “Lord of the Rings” books to gain a clear view of all of fictional Middle-earth, Palantir became a publicly traded company in 2020, in the depths of the Covid-19 pandemic.
Its business thrived during the Biden administration. But its shares took off with President Trump’s re-election. From Nov. 5, 2024 through Thursday, its shares rose 240 percent. In the S&P 500, that was second only to Robinhood, the online trading app for stocks, cryptocurrency and prediction markets.
Palantir’s market value reached $490 billion briefly this month, prompting a Wall Street Journal analysis that found that no company had ever reached that valuation that quickly, and none had done it with so little in sales. In mid-August, The Economist magazine said “Palantir might be the most overvalued firm of all time.” I’ve noted before that, while Palantir’s revenues and profits were growing at an enormous speed, its share price seemed wildly generous, compared with other large companies.
With the help of Aigars Sležis, a consultant for FactSet in Riga, Latvia, I reviewed the numbers this past week. Yes, Palantir is extravagantly valued. Its price-to-earnings ratio is more than 400. That means that at the company’s current growth rate, it would take more than 400 years for Palantir’s earnings to equal its share price and 120 years for its sales to match that price.
By contrast, for the average company in the S&P 500, the comparable numbers are more than 28 times for earnings and more than three times for sales. Even those numbers are stretched, by historical measures, but they are modest compared with Palantir’s.
The company is growing far more rapidly and profitably than the average company. But can Palantir, or any company, grow fast enough to justify the price being paid for it? Similar questions may be asked of Nvidia and other profitable but richly valued companies.
The World Hasn’t Caught Up
Millions of people are affected by these prices. If you hold stock mutual funds or exchange-traded funds, or have a share in a pension plan, there’s a good chance you own a piece of Palantir. The company is part of U.S. diversified stock funds offered by Vanguard, BlackRock, State Street, Fidelity and many other large fund managers.
Probably because it doesn’t make military hardware, Palantir is also among the top 20 holdings of two of the three biggest funds that typically eschew military companies. These are Vanguard FTSE Social Index Fund Admiral and iShares ESG Aware MSCI USA ETF. On the other hand, the Parnassus Core Equity Investor, the largest fund that emphasizes so-called “E.S.G.,” or environmental, social and governance principles,excludes Palantir.
It’s understandable that parts of the investing world haven’t caught up with Palantir. Nor has the general public. I see its ascendance as part of a long U.S. tradition.
Long before the dawn of A.I., Dwight D. Eisenhower, in his farewell address as president in 1961, warned about the emergence of what he labeled “the military-industrial complex.” The United States, he said, needed to grapple with the “conjunction of an immense military establishment and a large arms industry.”
His parting words were: “The potential for the disastrous rise of misplaced power exists and will persist.”
The companies embedded in the military-industrial complex have fostered U.S. global dominance all my life, so I would never bet against what we might now call the A.I.-military industrial complex.
Palantir has become an important part of this corporate-military universe, without question. Even so, I do wonder how the stock market can keep supporting its remarkable share price.
Jeff Sommer writes Strategies, a weekly column on markets, finance and the economy.
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