Palantir's $5.4B Government Contract Surge: Which Defense ETFs Win?

While you watched Tesla, Palantir secured a contract with the U.S. Army worth up to $10 billion in August 2025, consolidating 75 separate contracts into one enterprise deal. 

But that's just one piece of a larger pattern. While markets focused on Tesla's performance, Palantir quietly positioned itself as the operational backbone of federal government modernization through an unexpected channel: the Department of Government Efficiency.

Here's what we know. 

Palantir reported 36% revenue growth in Q4 2024, with U.S. government revenue surging 45% YoY The company closed Q4 with total contract value reaching $5.43 billion and customer count expanding 43% YoY to 711 customers. 

But the numbers tell only part of the story.

Immigration and Customs Enforcement records show Palantir $PLTR received a $30 million contract to build a platform to track migrant movements in real time (August, 2025). 

DOGE has hired numerous former Palantir employees and is using the company's Foundry platform across multiple agencies. At the IRS, DOGE wanted to use Palantir's Foundry tool to deal with legacy technology challenges that have existed for decades.

The Trump administration's push to modernize federal technology created a structural tailwind for Palantir. Palantir engineers have reportedly worked alongside federal agencies to develop a "Mega API" layer that allows the government to access and analyze records across the IRS and other departments in real-time. This shifts Palantir from vendor to infrastructure provider.

Recent contract wins reinforce this trajectory. 

On December 15, 2025, Palantir secured a $446 million contract for the U.S. Navy's "ShipOS" initiative to deploy a new AI‑powered platform across its submarine industrial base, marking one of the most ambitious attempts yet to fix chronic shipbuilding delays and maintenance bottlenecks.

Not all defense ETFs offer equal access to Palantir's government contract momentum. The composition differences matter for investors positioning around this trend.

Global X Defense Tech ETF $SHLD holds the strongest Palantir exposure. Palantir is SHLD's top holding at almost 10% of fund assets, and the top 10 stocks make up 62% of assets. $SHLD launched in September 2023 with a focus on defense technology rather than traditional aerospace. The fund soared 65.9% year to date, with performance partially explained by Palantir's surge. The 0.50% expense ratio sits in the middle range for defense ETFs.

SPDR S&P Aerospace & Defense ETF $XAR takes a different approach. XAR tracks 40 holdings with heavy weighting in RTX, Boeing, Lockheed Martin and General Dynamics. The equal-weight methodology limits concentration risk but also caps Palantir's impact on returns. XAR's 0.35% expense ratio makes it cost-competitive, and the fund posted a 30.6% year-to-date return through August 2025.

iShares U.S. Aerospace & Defense ETF $ITA emphasizes market-cap weighting. ITA has 37 equity holdings with top three stocks being GE Aerospace, RTX and Boeing making up more than 40% of assets. The fund allocates 76% of capital to its top 10 holdings. Palantir receives minimal weighting in ITA's portfolio. The 0.38% expense ratio and $12.4 billion in assets make it the largest defense ETF by AUM.

Direxion Daily Aerospace & Defense Bull 3X $DFEN offers leveraged exposure but comes with complexity. DFEN aims to triple the daily return of an index of defense stocks and rebalances daily, meaning performance over longer periods will diverge significantly from underlying stocks. The 0.97% expense ratio reflects the cost of leverage. This structure works for short-term tactical positions, not buy-and-hold strategies.

The defense industry is splitting into two distinct investment categories. 

Traditional contractors like Boeing, Lockheed Martin and Raytheon focus on platforms with decade-long development cycles. Software-defined defense companies like Palantir, Anduril and Shield AI emphasize rapid deployment and iterative improvement.

The next generation of military technology will depend less on advances in shipbuilding and aircraft design than on advances in software engineering and computing. This shift creates valuation challenges. Palantir trades at triple-digit P/E ratios while traditional contractors sit in the teens. The premium reflects growth expectations and margin structures fundamentally different from hardware manufacturing.

Over the last week, Palantir, Anduril, Shield AI, OpenAI, Booz Allen, and Oracle announced various partnerships to develop products tailored to defense needs. 

The 2025 National Defense Authorization Act includes provisions pushing the Defense Department toward closer collaboration with tech firms on AI. Section 1532 mandates expansion of secure, high-performance computing infrastructure to support AI training and development.

Palantir $PLTR price targets for late 2025 vary, with Wall Street analysts showing a general "Hold" consensus around the $170-$190 range. 

Analysts noted that if DOGE ushers in an era of commercial-like contracting, digital-first development requirements, and open-architecture requirements, then Palantir's line of businesses and approach to government fit well.

Investors seeking defense exposure face a choice between broad sector coverage and concentrated bets on the software transformation. 

$SHLD offers the most direct Palantir exposure among defense ETFs but lacks the diversification of $ITA or $XAR. 

Traditional defense ETFs provide stability through established contractors with predictable revenue streams. Technology-focused defense ETFs carry higher volatility but capture the sector's structural shift.

The government contract pipeline suggests Palantir's federal revenue has room to run. U.S. commercial revenue grew 64% year-over-year in Q4 2024, indicating the commercial segment is accelerating faster than the government. This dual-engine growth model distinguishes Palantir from pure-play defense contractors dependent on procurement cycles.

Valuation remains the primary risk. $PLTR surged 340% in 2024 and continued gains through 2025. 

The defense software trend extends beyond Palantir. 

Monitoring contract announcements from the Pentagon, particularly those emphasizing AI integration and data platforms, will signal whether the structural shift persists or represents a transitory spending spike concentrated in one administration's priorities.

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Disclaimer: This is not financial or investment advice. Do your own research and consult a qualified financial advisor before investing.