2 Artificial Intelligence (AI) Stocks the U.S. Government Is Actively Backing in 2025
Source: Motley Fool
Date: 17 Aug 2025 06:00
Key Points
Defense Secretary Pete Hegseth announced plans for the U.S. government to increase software use across operations. Palantir Technologies and BigBear.ai have benefited significantly this year, with their AI software deployed widely in government agencies. Among these, one company stands out as a stronger player.
Most discussions about AI stocks focus on semiconductors, data centers, or cloud infrastructure. This benefits companies like Nvidia, AMD, Broadcom, TSMC, Microsoft, Amazon, or Alphabet. However, enterprise-grade AI software is becoming an essential layer on top of hardware. These solutions address complex needs in data analytics, logistics, HR, cybersecurity, and more for large organizations.
Beyond the private sector, AI is reshaping how the U.S. government operates. Defense Secretary Hegseth outlined increased spending on the Software Acquisition Pathway (SWP), a strategy started in 2020 to enable efficient, secure software acquisition and delivery. Two companies leading in this area are Palantir Technologies (NASDAQ: PLTR) and BigBear.ai (NYSE: BBAI).
1. Palantir Technologies: The AI Darling of the U.S. Government
Palantir secured several major contracts with the federal government in 2025. In May, it extended a $795 million contract with the Department of Defense (DoD) for its Maven Smart System (MSS), bringing the total MSS program value to $1.28 billion. It also won an Army contract potentially worth up to $10 billion over the next decade.
Palantir’s work goes beyond the military. It is developing the Immigration Lifecycle Operating System (ImmigrationOS) for Immigration and Customs Enforcement (ICE). These multi-year, billion-dollar deals provide strong revenue visibility and create opportunities for upselling services. The company’s ability to expand its defense expertise into various government functions broadens its public sector impact and solidifies its role as a key AI software provider.
2. BigBear.ai: A Niche Player Helping the Public Sector
BigBear.ai also won significant government contracts this year. In February, it received a DoD contract to build a system aiding national security decision-making by analyzing foreign media trends. It secured a $13.2 million deal over 3.5 years supporting the Joint Chiefs of Staff’s force management and analytics.
In May, BigBear.ai partnered with Hardy Dynamics to advance AI for autonomous Army drones. It also deployed its biometric AI system, Pangiam, at major North American airports for U.S. Customs and Border Protection. While impactful, BigBear.ai’s contracts are smaller and more specialized compared to Palantir’s.
Which Stock is the Better Choice: Palantir or BigBear.ai?
Palantir stands out as the stronger stock between the two. BigBear.ai shows promise with niche government deals, but Palantir’s multibillion-dollar contracts across multiple government platforms offer greater scale and revenue stability.
BigBear.ai tends to attract retail investors hoping it will become the next Palantir. However, investment decisions should rely on valuation and fundamentals rather than speculation. Palantir’s stock is expensive by traditional metrics like price-to-sales ratio, despite some Wall Street arguments supporting its valuation through software-specific measures.
While Palantir is a proven player delivering critical AI applications, its shares trade at a historically high valuation. Waiting for a more reasonable price may offer a better entry point for investors.
Should You Invest $1,000 in Palantir Technologies Now?
Before investing, consider that some top stock advisory teams have not included Palantir in their current best-buy lists. These teams focus on stocks with potential for high returns, based on thorough analysis rather than hype.
For example, past recommendations from these advisors include Netflix and Nvidia, which generated extraordinary gains for early investors. Their average returns significantly outperform the S&P 500.
For government professionals interested in AI and software developments, keeping an eye on these companies and their government contracts is important. For further learning on AI applications and software in public sector contexts, visit Complete AI Training's government-focused courses.
Summary
- The U.S. government is increasing investment in AI software through the Software Acquisition Pathway.
- Palantir Technologies leads with large-scale, multi-billion-dollar contracts across various government agencies.
- BigBear.ai has secured smaller, niche contracts supporting defense and security functions.
- Palantir’s stock valuation is currently high, suggesting caution before investing.
- Investors should prioritize fundamental analysis and watch for better entry points.
Disclaimer: This article is for informational purposes only and does not constitute investment advice. Past performance does not guarantee future results.
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