Palantir becomes a ‘Trump trade’ as investors bet on higher defence spending

Palantir has added more than $23bn to its market capitalisation since Donald Trump was elected US president this month, as investors bet the secretive government contractor will be among the biggest winners of enhanced federal spending on national security, immigration and space exploration.

The latest stock rise adds to a blistering rally for Palantir in the past year, with its shares up having almost tripled to $61 per share, giving the company a value of almost $140bn.

That surge marked a bigger jump than chipmaker Nvidia in the past 12 months, and pushed Palantir to a larger market cap than Lockheed Martin, one of the biggest defence prime contractors in the US.

Palantir, which was founded by technology veterans including Peter Thiel, Joe Lonsdale and Alex Karp in 2003, helps governments and corporations collate and analyse vast troves of data to identify complex patterns and construct detailed intelligence that can be used to improve their operations.

The US government is its largest client. Agencies from the CIA and National Security Agency to the armed forces and police have deployed its systems to track down terrorists, stop hackers, deport illegal immigrants and charge financial fraudsters. Palantir’s technology was used to kill al-Qaeda leader Osama bin Laden, distribute the Covid-19 vaccines and convict financier Bernard Madoff.

Investors are betting that Palantir is well-positioned for higher government spending on defence under Trump.

In May, the company won a five-year contract worth $480mn to expand the Pentagon’s marquee AI battlefield intelligence programme, Project Maven, using its data processing to identify military points of interest and improve the efficiency of analysts.

“Trump is going to be a man on a mission, especially in Israel and Ukraine,” said Roger Monteforte, chief executive of Forte Capital Group, a Palantir investor. “Palantir is going to be a pivotal player.”

He added that the company was one of a “trifecta” of “Trump trades” — stocks that stand to gain from their proximity to the new administration — alongside Elon Musk’s electric-car maker Tesla and Palmer Luckey’s autonomous weapons start-up Anduril, a private company whose shares have rocketed in secondary market trading.

Although the president-elect has vowed to control federal spending, Musk has said more defence spending should be allocated to “entrepreneurial companies” rather than traditional defence prime contractors.

Musk’s personal interest in space exploration, through his rocket builder SpaceX, could also benefit Palantir. In June, Palantir joined a consortium called Starlab that will launch a commercial space station later this decade to serve Nasa and other space agencies, as well as commercial customers, as a successor to the International Space Station.

“Palantir has two levels of alignment with the new administration,” said Gil Luria, a software analyst at DA Davidson. “Its founders are within the inner circle of influence with the administration. The other alignment is ideological. Palantir has a clear mission to protect western civilisation, and that aligns very well with the philosophy of the incoming administration.”

Palantir was attacked by advocacy groups over its contracts with Immigrations and Customs Enforcement under the previous Trump administration, which accused it of facilitating efforts to deport millions of immigrants from the US and contributing to human rights abuses.

The group’s recent valuation boom is a result of Thiel and Karp’s popularity with an online army of loyal retail investors, mania around artificial intelligence, and accelerating growth while improving profit margins over the past year. Palantir is trading at among the highest multiples of any software company: its share price is trading at 40 times next year’s expected revenue and at 130 times expected earnings

Investors on Monday traded more than 1.6mn options tied to Palantir’s stock, putting it behind only Nvidia and Tesla as the third most popular company in the US options market. Options trading allows investors to make cheap leveraged bets on a stock’s direction and has become popular with retail trading forums such as Reddit.

Karp, who has a doctorate in neoclassical social theory, has become known on such forums for ideological proclamations about patriotism, society and technology.

“This is the software century, and we intend to take the entire market,” he wrote in his most recent quarterly letter to investors. “We built this company to arm and defend our most significant institutions, not tinker at the margins creating idle, decadent diversions.”

Karp has made around $1bn from sales of his Palantir stock since the election, as the price jump triggered automatic selling under his remuneration plan.

Thiel, Palantir’s chair, has been one of Trump’s biggest allies in Silicon Valley and has been the main backer of the political rise of vice-president elect JD Vance. However, Thiel turned down a request by Trump to donate to his campaign this election cycle.

Lonsdale, who left Palantir in 2009, is close to Musk and has been primed for a potential role in the Trump transition team, according to people familiar with the matter.

A person close to Palantir said it was not as clear cut that a Trump presidency would be a boon for the business.

“[Palantir] has boomed under Biden and become a significant player through the Ukraine war and Israel,” the person said. “The Trump thing is superficial perception; no one wants to speculate one way or the other.”

Since 2010, Palantir has expanded its services to the private sector, which has supercharged growth thanks to major contracts with corporations such as Rio Tinto, BP, General Mills and CVS Health. Its enterprise contracts were boosted by the launch of its AI platform last year, which helps companies manage operations and supply chains, and with fraud and risk detection, drug discovery and demand forecasting.

Palantir had its first profitable year in 2023 as its commercial business exploded in popularity, now accounting for 35 per cent of revenue. Overall, Palantir reported a record net income of $144mn in the third quarter of this year, and forecast adjusted income for the fourth quarter of about $300mn.

The group was added to the S&P 500 in September, a stamp of legitimacy on the stock that means it can be included in index-tracking funds held by institutional investors. Last week, it announced it would switch its stock market listing from the New York Stock Exchange to Nasdaq on November 26, and expects to join the Nasdaq 100.

Palantir board member and 8VC partner Alex Moore said on X that move “will force” billions of dollars in purchases of its stock by exchange traded funds, resulting in gains for its retail shareholders.

Some analysts, however, have warned its high price-to-earnings ratio is a cause for concern. “We cannot rationalise why Palantir is the most expensive name in software,” RBC analysts led by Rishi Jaluria wrote last month, giving it a price target of just $9 per share.

Additional reporting by Nicholas Megaw in New York