Palantir and IBM Positioned to Capitalize on Pentagon’s Massive AI Spending Surge

The Pentagon's AI budget explodes—and two tech giants stand ready to cash the checks.

Defense Dollars Flow to AI

Palantir's battlefield analytics platforms and IBM's quantum computing initiatives just became the Pentagon's favorite new weapons. Military contracts shift from hardware to software as artificial intelligence dominates defense strategy.

Silicon Valley Meets Pentagon

These companies aren't just selling technology—they're embedding themselves in military infrastructure. Palantir's Gotham platform already tracks everything from supply chains to enemy movements, while IBM's AI systems process intelligence faster than any human team.

The cynical finance take? Wall Street analysts suddenly care about 'national security' when there's a 9-figure contract attached—how patriotic.

One thing's clear: the future of warfare runs on code, and these companies write the winning algorithms.

Image source: Getty Images.

Palantir Technologies

Palantir is more than just the most compelling AI company that's working with the federal government these days. In my opinion, it's the ultimate growth stock, with gains of 2,300% in the last three years. Had you invested $10,000 in Palantir then, you'd be sitting on $240,000 now.

Palantir is a data mining company that pools information from countless sources, including military satellites, in order to help intelligence agencies and the military analyze, predict, and make real-time decisions. It's incredibly useful for miliary commanders in a battlefield situation, or in order to figure out where an adversary's assets are located.

Its Artificial Intelligence Platform (AIP) makes Palantir's products even more useful, as users can post detailed prompts and get quick answers to queries, greatly reducing the time needed to train new users.

In the second quarter, Palantir posted its first-ever quarter with $1 billion in revenue, an increase of 48% from a year ago. The U.S. government remains Palantir's biggest client, growing 53% from a year ago.

Palantir's position in the AI space is unparalleled, which is why I'm not terribly concerned with the stock's overloaded valuation, including its price-to-sales ratio of 131. There is still a lot of momentum in Palantir stock, and I'm expecting the returns to continue for several more quarters at least.

International Business Machines

IBM is a blue chip computing company that's still turning heads. The company's AI offerings include its Red Hat hybrid cloud, which combines public and private clouds and on-premises infrastructure, so the Pentagon can decide how to best connect their teams and processes.

IBM also employs defense simulation analytics, which allow the military to experience real-time mission planning to improve analysis and situational awareness, and provides consulting services to modernize military units and incorporate AI.

Last year, IBM was awarded a $576 million, 10-year contract to produce commercial semiconductor technologies for military applications, and has a $275 million contract awarded in 2019 to develop semiconductor manufacturing at contracted fabrication plants for the military.

IBM's revenue in the second quarter was $17 billion, up 8% from a year ago, and profits were $10 billion, up 11% from last year.

Two companies to watch

While IBM is a legacy computing company and Palantir has been the flashy new name on Wall Street, both AI stocks are positioned to profit from the Pentagon's increasing embrace of technology. Artificial intelligence has proven to be an invaluable tool to help the military be more productive and to make life-or-death decisions in secure environments. I expect both companies to continue to grow their government portfolios in the AI space.