Palantir vs. IBM: Which Defense AI Stock is the Better Long-Term Bet?
The increasing government investment in AI-driven defense programs is creating opportunities for companies like Palantir (NASDAQ: PLTR) and IBM (NYSE: IBM). While both companies are poised to profit, investors are questioning which stock offers the better long-term value. This article compares their growth trajectories, investment profiles, and future prospects.
Palantir: High Growth, High Valuation
Palantir specializes in data mining and analytics, providing services to the U.S. government and other organizations. Over the past year, they have secured new contracts with the U.S. Army, the U.K. Ministry of Defence, and Canada's Department of National Defence. Palantir's platforms, Gotham and Foundry, serve government and commercial clients, respectively, offering tools for mission planning, tracking individuals, and creating customized AI applications.
Palantir's revenue growth has been impressive, surging 47% in 2020 and 41% in 2021. Although growth slowed to 24% in 2022 and 17% in 2023, the company turned profitable by streamlining spending. In 2024, revenue rose 29%, and net income more than doubled, driven by the expansion of its U.S. commercial business, the adoption of AI tools, and increased government contracts. This led to its inclusion in the S&P 500 and Nasdaq-100.
Analysts project substantial growth for Palantir, with revenue and earnings per share (EPS) expected to grow at a CAGR of 38% and 63%, respectively, from 2024 to 2027. However, the stock's high valuation, trading at 305 times next year's earnings, raises concerns. Its status as a "meme stock" also makes it vulnerable to market fluctuations.
IBM: A Turnaround Story with Stable Growth
IBM has undergone a significant transformation in recent years. Under CEO Arvind Krishna, the company has focused on hybrid cloud and AI, while spinning off its managed infrastructure services segment as Kyndryl. The acquisition of Red Hat has enabled IBM to offer open-source applications and hybrid cloud solutions, allowing it to carve a niche between public and private clouds.
From 2011 to 2020, IBM's annual revenue declined significantly. However, the shift towards hybrid cloud and AI has revitalized the company. From 2020 to 2024, revenue and EPS rose at a CAGR of 3% and 1%, respectively. Analysts predict continued growth, with revenue and EPS expected to grow at a CAGR of 5% and 16%, respectively, from 2024 to 2027.
Unlike Palantir, IBM's stock is reasonably valued at 27 times next year's earnings, and it offers a forward dividend yield of 2.5%. This makes it a more stable investment option, appealing to value investors seeking reliable returns.
Key Data Comparison: Palantir vs. IBM
| Indicator | Palantir (PLTR) | IBM |
|---|---|---|
| Market Cap (Sep 2025) | $425B | $253B |
| Current Price | $182.52 | $272.34 |
| 12M Stock Growth | +400% | +20% |
| 2024 Revenue Growth | +29% | 5% |
| CAGR forecast Forward P/E Ratio | 305 | 27 |
| Gross Margin | 80.03% | 56.94% |
| Dividend Yield | None | 2.5% |
| Key Clients | US, UK, Canada Governments | US Department of Defense |
| Sector Strength | Defense AI, Analytics | Hybrid cloud, AI, Security |
Investment Opportunity: Growth vs. Stability
Palantir offers high-growth potential, driven by its advanced AI technology and expanding government and commercial customer base. However, its high valuation and "meme stock" status make it a riskier investment. Investors should be cautious about entry price and market sentiment.
IBM, on the other hand, provides a more stable investment option. Its focus on hybrid cloud and AI, combined with a reasonable valuation and dividend yield, makes it an attractive choice for long-term investors seeking dependable returns. While its growth may be slower than Palantir's, it offers a more predictable and less volatile investment profile.
Conclusion: Choosing the Right Fit
Both Palantir and IBM are well-positioned to benefit from the increasing government spending on AI-driven defense programs. Palantir's innovation and rapid growth make it appealing to growth investors, while IBM's stability and transformation make it a solid choice for value investors. Ultimately, the better investment depends on the investor's risk tolerance and investment goals. Investors seeking high growth potential may favor Palantir, while those prioritizing stability and dividends may prefer IBM.
