The U.S. Army has awarded a total of $72 million to Palantir Technologies (NYSE: PLTR) and Raytheon Technologies (NYSE: RTX) for developing an innovative, software-powered ground system meant to improve beyond-line-of-sight targeting.
Palantir Wins Another U.S. Army Contract
Raytheon and Palantir were chosen by the U.S. Army in January last year to build a prototype for the Tactical Intelligence Targeting Access Node, a program that aims to efficiently transform battlefield intelligence into targeting information.
While that was the first phase of the program, the Army has now awarded $36 million to each Palantir and Raytheon to enter the second phase, which will involve turning their plans into prototypes.
The new stage is anticipated to last 14 months and will conclude with a demonstration and a contract offered to one of the companies. Phase III and IV will focus on perfecting the prototype and setting up the ground system to be able to integrate next-gen technology improvements.
In the first phase, Army collaborated with Palantir and defense firm Raytheon to make sure their plans fulfilled certain requirements for soldiers moving through a multiple-domain environment.
Meanwhile, as the two companies continue working on their prototypes, the U.S. Army and the Pentagon’s Defense Innovation Unit have teamed up with the aerospace and defense company Northrop Grumman to build two pre-prototype ground stations which will Palantir and Raytheon use to test TITAN’s capabilities.
The Army anticipates starting using the Northrop systems as the prototypes begin demonstrations in a few months. According to one of Palantir’s head engineers, the pre-prototype capabilities will ultimately become a part of the software specialist’s prototype and are expected to be integrated near the end of Phase II.
Integrating data systems into warfare domains through initiatives such as TITAN represents one of the key aspects of the Department of Defense’s Joint All-Domain Command and Control concept. The Army started the trials of this concept using TITAN surrogates two years ago as a part of its 2020 Project Convergence demonstration. Back then, the Army used a TITAN stand-in system that was connected with tactical satellite imagery to create targeting options.
It is important to note that the size of a new U.S. army contract is only 1-2% on Palantir’s full-year revenue, hence it’s unlikely that investors will change their near-term stance on Palantir shares due to this positive development.
Palantir shares are down over 50% YTD.
What are Analysts Saying?
Last week, Bank of America analyst Mariana Perez Mora rated Palantir’s stock as Buy, including a price target of $13 per share.
In her note to clients, Mora said she believes Palantir will significantly benefit from the rising demand for artificial intelligence (AI) platforms across commercial and government markets.
“Palantir’s dominant position in the AI-powered software market, differentiated end-to-end & highly-secure solutions and first-mover advantages should support more than 30% annual revenue expansion and improving profits in the midterm,” Mora said.
Moreover, the analyst thinks that “increased urgency on modernizing military and intelligence capabilities” add further opportunities for the company.
“Our PO is based on a long-term DCF of Base, Bull, and Bear cases for different revenue and cash generation scenarios between now and 2040,” she noted.
Mora explained despite the fact that current geopolitical tensions could weigh on global software penetration, they are also an opportunity for Palantir’s national security products as the U.S. and other armies will demand better data and logistics solutions “as soon as possible.”
The analyst continued that the U.S. and its allies are expected to expand their defense budgets, with a particular focus on the development and integration of next-gen technologies.
Mora said data represents a strategic asset and national security organizations will have to ensure they use it in a secure manner to provide them improved protection against threats from rivals such as Russia and China.
In its latest fiscal quarter, Palantir reported revenue growth of 31% year-over-year to $446 million, while customer count increased by 86% from the same period last year.
Summary
Palantir shares are trading over 50% YTD amid revenue growth concerns and a tough macro environment. Although the company won the new U.S. contract, its modest size is unlikely to facilitate an upside for Palantir shares from current levels.
