Is Palantir’s Deal With Booz Allen a Game Changer?

Since Donald Trump was announced president-elect, the S&P 500 (SNPINDEX: ^GSPC) has gained roughly 2% while the Nasdaq Composite (NASDAQINDEX: ^IXIC) has jumped by about 5%. At a high level, these moves suggest that stocks have broadly been moving higher over the last month or so.

However, two stocks moving in opposite directions since the election was called are government consulting operation Booz Allen Hamilton (NYSE: BAH) and enterprise software company Palantir Technologies (NASDAQ: PLTR).

Since Nov. 6, shares of Booz Allen declined roughly 25% while Palantir stock soared by almost 40% (as of market close on Dec. 13).

But in early December, Booz Allen and Palantir announced a strategic partnership that could be a game changer for both companies. Let’s explore how the two companies are collaborating, and what it could mean for long-term growth for each enterprise as the artificial intelligence (AI) era continues to unfold.

One of Trump’s campaign promises was to create a new government agency focused on identifying and cutting excess budget spend in order to improve the federal deficit. Given Booz Allen is a consulting firm that works closely with the government, the sell-off in the stock was likely induced by investor panic that business for the company will suffer as the budget initiative puts a more stringent eye on government projects.

By contrast, Palantir already has an existing footprint with the U.S. government — particularly with the Department of Defense (DOD). Through the nine months ended Sept. 30, Palantir generated $1.1 billion of revenue from its public sector operation — an increase of 24% year over year and comprising approximately 55% of the company’s total revenue base.

Given the increasing focus on national security amid geopolitical unrest in Eastern Europe and the Middle East, combined with the military’s rising focus on artificial intelligence, it’s not surprising to see Palantir stock get a jolt of investor enthusiasm following the election.

While Palantir is regarded as a high-quality software developer, it’s important to understand that integrating its technology can often be a complex and time-consuming exercise. Generally speaking, software companies may have a professional services team that helps new customers implement their new tools in a seamless, efficient way so they can start tackling problems and identify use cases.

I see the partnership between Palantir and Booz Allen as an expansion of that idea. While Palantir specializes in AI software applications, Booz Allen carries the expertise needed to integrate these tools in niche, complicated environments such as those in the defense industry.

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