$42 billion Palantir's new $90 million contract to help with safety at America's nuclear weapons branch is key to a crucial initiative to expand its business beyond defense contracts

  • Palantir won a $90M deal with the US nuclear branch to aid in safety and other initiatives.
  • The deal shows that “Palantir has built an unmatched moat” in federal IT, as it grows beyond defense.
  • Palantir’s work and Trump ties are often controversial, and it could face challenges from Biden.
  • See more stories on Insider’s business page.

The secretive big data company Palantir, which went public in September, announced a new contract with the Department of Energy’s National Nuclear Security Administration (NNSA) — which oversees the country’s nuclear weapons stockpile — worth $89.9 million over up to five years. Shares of the company are currently worth $23, down some 2% since January.

Under the new contract, finalized last week, the Denver-based Palantir will supply data analysis software for the department’s enterprise-wide Safety Analytics, Forecasting and Evaluating Reporting (SAFER) project. 

According to a 2018 document outlining the initiative, the government’s nuclear branch aims to turn its “vast of amounts of data into actionable insights for NNSA decision makers” around safety and executing its mission. NNSA manages over 400 nuclear and hazardous facilities and 39,000 laboratory and plant employees.

A Palantir spokesperson declined to comment on the contract and its federal business. 

While Palantir is best known for its much-scrutinized work with defense and intelligence agencies — including taking over the controversial Project Maven AI contract following employee protests at Google — the company has long held that it’s useful in other scenarios. Indeed, its long-term success may depend on it. Wall Street has said Palantir needs to diversify its revenues beyond defense contracts alone, and expand into new areas of government and within enterprises to stabilize its business.

While the $90 million contract represents only a small piece against the $1.1 billion it booked in annual revenue last year, analysts say it shows a new aggressiveness in expanding beyond its bread-and-butter in defense, and going after federal IT dollars. The company’s stock jumped 6% after the NNSA deal was announced on Monday, giving the company a market cap of some $42 billion at the time of publication.

“Palantir is the gold standard from a data security and platform perspective,” Dan Ives, an analyst at Wedbush Securities, told Insider. “Getting a deal such as this on the nuclear front, it just further emboldens their position within the federal circle.”

Palantir is looking to get more federal IT dollars

Palantir said in a press release that the contract is its first with the Department of Energy, but the data mining company is also looking elsewhere for more federal dollars.

Chris Cornillie, a federal technology market analyst at Bloomberg Government, told Insider that the contract was validation that Palantir’s tools are “flexible enough to ingest safety data from the Department of Energy, as well as intelligence data or the kind of work it does for the Defense Department.”

That flexibility is apparently becoming a selling point: Palantir earned $263 million in federal contracts in fiscal year 2020, up from $162.5 million the year before, according to figures from USASpending.gov. While over half of its total federal dollars come from the Defense Department, Palantir earned slightly more from its Department of Health and Human Services deals than those from the Pentagon over the past 12 months.

It’s partly because the pandemic was good for the data business: In December, Palantir won a $44.4 million contract with the Food and Drug Administration to help with data for drug approvals and the safety inspection of items like hand sanitizer. Also in December, the National Institutes of Health awarded Palantir $12.6 million for its N3C Data Enclave platform, which stores the COVID clinical data of 4.8 million people.

Last month, Health and Human Services fast-tracked Palantir contracts totalling $24.9 million for HHS Protect, its central COVID data collection and analysis platform. The company also developed a platform to analyze vaccine distribution as part of Operation Warp Speed. Beyond pandemic-related deals, Palantir also has contracts with agencies including the Department of Homeland Security, Veterans Affairs, and the Departments of Agriculture, Justice, Treasury, and Commerce, and even the Space Force.

Still, its defense work is lucrative. Palantir’s growth trajectory is closely tied to the nation’s defense budget, and the Pentagon is ramping up its interest in AI and data analytics — both areas where Palantir has already made inroads and benefits from familiarity with government agencies. Awards are often made “through who’s who from a government agency perspective,” Ives said, “and that’s had a viral effect for them to get more and more deals.” 

And the contracts themselves, such as those from Health and Human Services, may be weeding out competitors: “As they get larger from a scale perspective and more complex, there are less competitors. Palantir has built an unmatched moat that enables them to check all the boxes, to get the trophy keys with deals like this,” Ives said.

Government deals are both an opportunity and a risk

With a reputation tied to Trump’s immigration policies, Palantir is seeking new deals and types of work under Biden.Reuters/Shannon Stapleton

Outside of government deals, Palantir is growing its business with enterprises, Ives said, calling its defense and intelligence customers “the best reference customers in the world.” “It’s enabled Palantir to build its sweet spot and expand from the Beltway more to enterprise deals,” he said.

In February, Palantir announced an artificial intelligence partnership with IBM Cloud that also runs in hybrid (a mix of cloud and physical server) environments, and targets companies in manufacturing, financial services, healthcare, and other industries. It has some of them onboard already, like Airbus and BP, using its private sector product Palantir Foundry.

But, its often-covert government work has also caused problems for Palantir. Contracts with Immigration and Customs Enforcement were a flashpoint for Palantir during the Trump administration — activists and its own employees protested the company’s work in enforcing Trump’s crackdown on immigrants.

Employees of Amazon’s cloud unit have also taken a stand against the contracts, demanding it stop providing cloud services to Palantir, which could spend up to $1.5 billion on cloud computing over a five year period. In its Securities and Exchange Commission filing, Palantir said its relationships with government customers “engaged in certain sensitive industries” has resulted in criticism from activists and media, and could be a risk to its business.

Cofounded by billionaire Peter Thiel, a supporter of Donald Trump, the company racked up deals throughout the Trump presidency. But as Palantir wrote in its filing, the change in administration is also a risk, and it could be adversely impacted by shifts in “government and agency leadership positions in connection with the 2020 presidential election.”

How that impact plays out remains to be seen, including whether the company’s reputation remains tied to Trump’s policies, and if President Joe Biden continues the tech modernization initiatives found in his COVID stimulus package and invests in AI. If he does, Palantir has already laid the groundwork.

“We wouldn’t be talking about Palantir today if they did not have the massive success that they have had over the last decade, even though it’s clearly come with its share of controversy,” Ives said.

Disclosure: Palantir Technologies CEO Alexander Karp is a member of Axel Springer’s shareholder committee. Axel Springer owns Insider Inc, Business Insider’s parent company.

Source: Read Full Article