AI Giants Target Palantir’s Stronghold on Government Contracts

Palantir, long considered the go-to tech firm for U.S.

government data contracts, is facing a growing threat as AI giants like OpenAI, xAI, Anthropic, and Google step into its once-exclusive territory. The government contracting battlefield is heating up fast-and it’s worth a staggering amount of money.

xAI, Elon Musk’s AI startup, recently launched ‘Grok for Government’-a new suite of tools and AI models tailored for U.S. government agencies. These offerings are now available on the GSA schedule, meaning any federal agency can easily procure xAI’s products.

But that’s just the beginning. All four companies-xAI, OpenAI, Anthropic, and Google-have secured agreements with the Department of Defense’s Chief Digital and Artificial Intelligence Office (CDAO). These agreements include contracts with a massive $200 million ceiling each to develop advanced AI workflows across critical mission areas.

One of the standout moves was OpenAI landing a $200 million, one-year prototype contract from the DoD-its first major defense deal and one of the largest AI contracts awarded annually by the U.S. military. Analyst Louie DiPalma from William Blair noted this as a seismic shift in defense tech partnerships, historically dominated by Palantir.

Still, Palantir isn’t fading into the background. The company recently became the world’s largest pure-play software firm by market cap, overtaking SAP. In Q1 2025, it boasted a jaw-dropping Rule of 40 score of 83%, signaling robust health in both profitability and growth. Palantir closed 139 government contracts worth over $1 million each and shattered commercial records by securing $810 million in new business-a 183% year-over-year growth.

Palantir’s dominant position may be challenged, but it’s still fighting strong. The true impact of this new wave of AI competitors will be clearer when Palantir reports its Q2 2025 earnings on August 8th.