Last year, it seemed like all anyone could talk about was how big tech was going to change the world with artificial intelligence (AI). Among the "Magnificent Seven" stocks -- Nvidia, Microsoft, Apple, Alphabet, Meta Platforms, Amazon, and Tesla -- it quickly became clear that AI would be the next megatrend, and these companies have been among its biggest influences.

However, smaller players have emerged and given big tech a run for its money. Data-analytics specialist Palantir Technologies (PLTR 3.92%) might just be the newcomer that will actually hold its own over the long run as it competes with larger companies.

As of this writing, Palantir is the top-performing stock in the S&P 500 for 2024. Much of these gains stem from investor enthusiasm around Palantir's newest software suite -- the Artificial Intelligence Platform (AIP). However, despite AIP's rapid adoption over the last year, many investors focus on its use cases in the private sector.

But below, I'll explore a lesser-known opportunity that Palantir is quietly dominating, one that will likely be the company's biggest catalyst in 2025.

Military AI is an enormous opportunity

For the last two years, investors have been told ad nauseum how AI will lead to higher productivity levels in the workplace and be the impetus for game-changing technologies, such as humanoid robotics or self-driving cars. But one area that consistently gets overlooked is how AI is playing a role in the defense sector -- specifically, in military operations.

Analysis from Mordor Intelligence suggests AI applications in the military include data analytics and robotics automation, which combine for a total addressable market size of over $60 billion. Below, I'll detail some of Palantir's major wins so far in this space.

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Palantir is dominating this niche

What I find encouraging about Palantir's public sector operation is that the company works with both government agencies and partners with other technology companies looking to get involved with defense operations. Earlier this year, Palantir and Microsoft joined forces for a campaign that integrates AIP into Microsoft's Azure cloud infrastructure, specifically in secured environments across the Department of Defense (DOD).

More recently, Palantir forged another alliance with a major cloud provider, Amazon Web Services (AWS). The partnership represents another use case for Amazon's large language model (LLM) Claude and how it can now integrate with AIP across defense agencies.

Lastly, Palantir recently partnered with Meta. Similar to the deals with Microsoft and Amazon, Meta will be leveraging Palantir's capabilities across its LLM (called Llama) as the company looks to make a splash across the public sector in its own right.

A bevy of new opportunities

Outside of partnering with big tech, Palantir has also secured a number of lucrative federal contracts over the last few months. Some notable examples include a multiyear deal worth up to $100 million as part of Palantir's Maven contract, as well as a deal worth nearly $1 billion with the Naval Information Warfare Center (NIWC).

On top of the deals won directly from the government, Palantir has also struck partnerships with interesting players outside of big tech. For example, the company just announced an alliance with Anduril -- a start-up that develops autonomous systems, such as underwater drones. In addition, the company also partnered with government consulting leader Booz Allen Hamilton.

The bottom line

While Palantir has long enjoyed a foothold in the public sector (and specifically with U.S. government agencies), the many deals and partnerships it has signed recently highlight the company's continued momentum. They also signal that the government is increasing its investment in AI with Palantir being a consistent beneficiary of such work.

The company's U.S. government business could show significant acceleration trends next year as its various partnerships and contracts bear fruit.