Palantir’s Poised to Win in the Sovereign AI Era, Goldman Says

The best defense is a good offense. That plus sovereign AI.

The latter point is why Goldman Sachs analyst Gabriela Borges slapped defense tech firm Palantir with an upgrade on Thursday, changing the stock’s rating to buy from neutral with a price target of $230 per share. Borges’s thesis? In an increasingly hostile and unwieldy digital world, governments and enterprises demand bespoke, localized AI systems (a.k.a., sovereign AI), and Palantir is well suited to meet that demand.

Many Models to Rule Them All …

Frontier labs such as OpenAI and Anthropic may be offering the most powerful and cutting-edge AI tools on the planet, but they’re a bit too squishy when it comes to storing, and possibly accessing, critical customer data. The dynamic is increasingly making their platforms a no-go for governments and major businesses, who have plenty of reasons to prioritize privacy. In fact, according to a recent report by The Information, Palantir is one of several major companies, including Nvidia and Booz Allen Hamilton, that is threatening to cease business with the frontier firms until it can receive guarantees that its data and intellectual property are not being misused.

Moving off the cloud and into local sovereign AI systems is one way around the problem, and Palantir, despite deriving its name from the magical seeing stones featured in “The Lord of the Rings,” is a little more privacy oriented. Borges says the market for bespoke software may outgrow packaged software in the upcoming years and that Palantir is poised to reap the rewards:

• “We believe enterprises are in the early stages of applying AI to their proprietary data to amplify their existing moats,” Borges wrote, adding that “industries with lower tech talent density” represent a particularly lucrative market for Palantir.
• A big edge Palantir has, according to Borges, is its “forward-deployed engineer” model, in which it sends software engineers to the frontlines of customer offices to help build sovereign AI systems using Palantir’s tools.

Forward Looking: Shares of the AI firm climbed 2.4% following the upgrade on Thursday and are now up some 12% year to date. Not bad, but it’s behind the tech-heavy Nasdaq 100’s 21% increase so far this year, nowhere near the 135% climb the stock took last year, and 340% rocket ship it rode in 2024. Weighing Palantir down this year has been its chunky multiple, with the stock trading at around 91 times forward earnings, way above the roughly 20 times forward earnings of the S&P 500.