Palantir has soared 74% this year alone. 3 reasons why it's been one of the world's best megacaps.

• Palantir is the second-best-performing stock in the S&P 500 in 2025.
• Shares are up 74% year-to-date, trouncing the broader index as well as other tech stalwarts.
• Government deals, AI hype, and retail bullishness are factors that have lifted shares this year.

Palantir stock is crushing the broader market and it's not even close.

Shares of the AI-powered software company are up 74% year-to-date, trading around $132 on Thursday. That performance handily trounces the S&P 500's gain of about 1.6%, but it's also vastly better than other tech titans like Nvidia (+5.6% YTD), Microsoft (+11% YTD), and Apple (-19% YTD).

Here's what's behind the stellar performance of the stock in 2025.

1. Government dealmaking

Palantir has inked a number of contracts with the Federal government this year, signing on to initiatives supporting the Trump administration's policy priorities.

In April, the software company secured a $30 million deal with the US Immigration and Customs Enforcement for software to monitor visas and track deportations.

In May, the firm teamed up with Fannie Mae, and said it would provide AI tools to support the government-sponsored mortgage financier's Crime Detection Unit.

It also secured a $795 million contract with the Department of Defense's AI arm, adding to a prior $480 million contract it secured with the agency last year. The contract lasts through 2029.

"We continue to believe that PLTR will continue to gain more deals across the federal government with its software value proposition playing perfectly into the broader efficiency theme," analysts at Wedbush Securities wrote in a note last month, calling the stock one of the "top names to own."

The ties to the Trump administration and its flurry of government dealmaking recently have put it among the winners of the Trump trade.

2. The AI trade

Palantir, with its artificial intelligence-powered data software, is viewed as a key part of Wall Street's booming AI trade.

During the first quarter, Palantir reported a total of $883.9 million in revenue, up 39% year-over-year. That was largely attributable to hot demand for the company's Artificial Intelligence Platform, analysts at Wedbush wrote in a note last month.

"We view Palantir as a generational tech name that we see as a trillion market cap over the next three years with PLTR being a core name in the AI Revolution theme over the coming years," Wedbush said.

CEO Alex Karp has touted the "rule of 40" as a key metric of the firm's success. The rule says software makers should be considered at the top of their game when revenue growth plus profit margins are equal to at least 40%. Karp bragged that Palantir's score was 83% in the company's first quarter earnings report.

"We are in the middle of a tectonic shift in the adoption of our software, particularly in the US where our revenue soared 55% year-over-year, while our US commercial revenue expanded 71% year-over-year in the first quarter to surpass a one-billion-dollar annual run rate," Karp said.

3. An army of retail investors

Retail traders love Alex Karp, praising the Palantir chief for his outspoken nature and meme-able public appearances.

Karp has also shown interest in developing a connection with his retail followers. On earnings calls, the top Palantir exec regularly answers questions from retail investors before addressing big bank analysts.

Palantir landed among the top 9 most trending stocks on r/WallStreetBets over the last month, according to Vanda Research, a firm that tracks retail investor activity and sentiment.

Retail traders also poured in a net $170.3 million into the stock in the last five days, the firm said on Thursday, making it the second-most purchased stock among individual investors after Tesla.

"Palantir is a recurring meme stock," Vanda Research said. "Retail traders are bullish on government contracts and AI potential, with high conviction among holders."