In 2025, Nvidia CEO Jensen Huang named Palantir Ontology “probably the single most important enterprise stack in the world today.” In 2026, Jensen Huang is no longer simply giving a nod to Palantir’s products, but tying the two firms together as they look to profit from one of the AI market’s largest opportunities: sovereign AI.
Sovereign AI describes data center deployments that are geographically located within the country or region that utilizes them, rather than relying on infrastructure located in foreign countries. Forecasters anticipate dramatic growth in the sovereign AI market as governments around the world look to deploy AI while keeping sensitive data secure, and aim to keep the GDP benefits of AI within their own country.
This partnership comes amid Nvidia posting one of its most impressive quarters in recent memory, and notably, large cloud providers like Amazon, Microsoft and Google were not Nvidia’s fastest-growing segment. As we covered in “Nvidia Fiscal Q2: The AI Giant Answers to Losing Market Share,” sovereign AI and regional neoclouds were among Nvidia’s fastest growth vectors, more than tripling YoY compared to hyperscaler growth of just over 100%.
Despite Nvidia’s sovereign AI business being relatively small compared to overall revenue at $30 billion in FY2026, it’s clear the company remains underpenetrated in a sovereign AI market that could exceed $500 billion over the coming years. As Nvidia looks to capture more of this opportunity and make sovereign AI a larger contributor to revenue, Palantir could play an increasingly important role. Ontology is one of several Palantir products Nvidia will work with going forward as the two companies deepen their relationship.
The U.S. government is Palantir’s largest customer, demonstrating its ability to succeed in markets where data security is critical. The company’s partnership with Nvidia has the potential to take its success in this space and international sovereign AI domains to the next level.
The Sovereign AI Market Could Reach Over $500 Billion by 2030
McKinsey calls sovereign AI “one of the largest opportunities within AI,” highlighting the significance of this partnership for Palantir. Notably, from 2025 to 2030, McKinsey forecasts the sovereign AI addressable market will reach between $500 billion and $600 billion, representing 30% to 40% of overall AI demand.
Furthermore, McKinsey sees the sovereign AI applications market growing by over a 35% CAGR in that period, from $30-$40 billion to $150-$180 billion. Meanwhile, the models, data, and tooling market is forecast to grow from just $6-$8 billion to $100-$140 billion, representing over a 77% CAGR. The combined midpoint CAGR is over 46% for a total market of $285 billion. In this scenario, applications, models, data, and tooling would account for 51.8% of the sovereign AI opportunity by 2030 to infrastructure’s 48.2% share. This comes as sovereign AI compute demand is expected to grow by only a 12% CAGR through 2030. While Nvidia is most exposed to the compute segment, Palantir’s offerings are most closely aligned with these higher growth categories, increasing its relative growth potential. Additionally, Nvidia’s unmatched scale in compute should aid Palantir in targeting opportunities across multiple large domains.
Nvidia and Palantir Target Growing U.S. Government AI Demand
At the end of June, Nvidia and Palantir announced a strategic initiative to capitalize on the growing sovereign AI market. The primary focus of the partnership is to provide sovereign AI environments for U.S. government agencies. The governmental need for sovereign AI is particularly pronounced in defense organizations, due to the classified information and strategic intelligence they possess.
Nvidia will provide two key layers of the AI stack; compute and its open Nemotron models. Meanwhile, Palantir’s products like AIP, Ontology, Foundry, and Apollo will provide an intelligent engine for training and deploying customized Nemotron models for each customer. This helps ensure that sensitive data remains isolated and does not flow to third-party model providers, which is key to government agencies leveraging AI at scale.
Palantir is already strongly entrenched with the U.S. government and in defense organizations. Its U.S. government sales grew by 90% YoY last quarter to $809 million, a drastic acceleration compared to 53% growth in the same period last year. Yet, there remains significant potential for Palantir’s relationship with the U.S. government to become much larger.
Palantir Has Only Begun to Penetrate the U.S. Defense Market
The company notes that its trailing 12 months’ revenue from the Department of War is still less than 0.25% of the Pentagon’s budget. Given this, the partnership with Nvidia could be critical to Palantir further penetrating its large opportunity within the U.S. government.
Adding more potential is the Department of War’s request that Congress appropriate $46 billion for a multi-year investment in a sovereign AI arsenal to build enterprise-scale AI infrastructure. With Nvidia being the world’s preeminent name in AI infrastructure and Palantir’s already strong relationship with the DoW, combining their efforts could allow for significant participation in this potentially huge investment.
Sovereign AI is creating large opportunities for Palantir and Nvidia, but key companies across networking, CPUs, and AI energy stand to benefit from this spending wave as well. Subscribe now to access the I/O Fund’s Top 20 Stocks report: Unlock Full Access
EU’s €30 Billion Sovereign AI Initiative Highlights International Opportunity
While the partnership does not specifically target international customers, this has the potential to be key growth driver. Nvidia is already actively engaged with non-U.S. sovereign AI customers, with its FY2026 sovereign AI growth primarily coming from customers based in Canada, France, the Netherlands, Singapore and the U.K.
Additionally, the majority of frontier closed and open-source models are based in the United States or China. This increases the need of other countries to deploy customized open-source models due to security and to keep the economic benefits of AI in their region.
Palantir is also gaining traction among international customers. International government sales rose 42% YoY to $181 million last quarter, while international commercial revenue grew 26% YoY to $182 million. However, these growth rates were far below U.S. government’s 90% YoY increase, and U.S. commercial’s 149% YoY increase to $764 million. With this, Palantir’s international growth may have significant room to accelerate further, with the emphasis on sovereign AI being a meaningful tailwind.
The international government and commercial markets for sovereign AI are often intertwined due to focus on the geographic location of infrastructure assets. Notably, the EU plans to outlay €10 billion in funding for up to seven AI gigafactories for use by both the private and public sectors, with Nvidia having signed a letter of intent to provide chips. The initiative is also expected to unlock at least €20 billion of private investment across the EU, demonstrating the interconnectedness of international sovereign AI initiatives across government and commercial entities.
The Enterprise Gap in Sovereign AI
It is not far-fetched to think that Palantir could also use its partnership with Nvidia to target the enterprise-specific sovereign AI market, which may not always be tied directly to government initiatives. Palantir could first follow the playbook it used to succeed with U.S. government clients to attract demand in the governmental sovereign AI market. It could then build on this expertise to target commercial sovereign AI deployments.
Similar to governments, one of the primary reasons for enterprise interest in sovereign AI is data security. In a recent study from Cisco, 77% of enterprises identified intellectual property protection of AI datasets as a top concern.
Amid this, McKinsey notes that 72% of the 300 enterprises it surveyed include sovereign AI as part of the 2026 roadmap. Yet, only 28% say they have a sovereign AI strategy in place, indicating a significant planning and implementation gap in this market.
The firm notes that this is a problem of supply, not demand, as “regulated industries like healthcare, banking, defense, or the public sector, we don’t see broad AI adoption, because sovereign offerings aren’t yet available.” This gap between supply and demand is one that Nvidia and Palantir could potentially provide solutions to fill over time.
Related to this, Palantir has also partnered with Nebius, one of Nvidia’s key partners and neocloud customers, to provide a sovereign AI offering to commercial customers that previously had this option.
Why the Nvidia-Palantir Partnership Could Have Long-Term Staying Power
Statements made by Nvidia and Palantir executives indicate significant alignment when it comes to the importance of sovereign AI.
Nvidia CEO Jensen Huang noted in the company’s latest earnings call, “every major company and every—surely, every country and every start-up needs to build their domain specific, their proprietary AI, their proprietary alpha. And the open models reaching frontier levels have made it possible, have enabled them to all do that.”
Meanwhile, in Palantir’s Q2 call, CFO David Glazer said, “We are seeing immense demand from enterprises recognizing the need for sovereign AI to retain full control of their alpha.” Additionally, Palantir’s CTO Shyam Sankar noted that building AI systems that a customer truly controls presupposes an open model, which is exactly what Nvidia provides with Nemotron.
The key connection is the reference to enterprises needing to build and retain their own “alpha” or the knowledge, insights, and competitive advantage that are unique to their business. Additionally, both companies point to open models as a key enabler to achieving this. Furthermore, Jensen Huang believes every country, major company, and startup will need to build its own proprietary AI. This implies a long runway of adoption, indicating that the firms could partner on this endeavor for years to come.
Conclusion
Alongside Nvidia’s massive AI compute scale, Palantir is positioned to attack a sovereign AI market that could exceed $500 billion by 2030. With sovereign AI still representing an emerging revenue opportunity for Nvidia relative to its broader AI business, there remains considerable runway.
For Palantir, having a partner like Nvidia offers an opportunity for international growth as countries allocate billions to sovereign AI initiatives, while expanding its reach with the U.S. government.
Sovereign AI is one of the clearest examples of how the AI opportunity is expanding beyond the infrastructure layer. Amid this expansion, I/O Fund is continually monitoring the market to identify the most promising second-order beneficiaries, many of which are detailed in our Top 20 Stocks Report. Unlock Full Access
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Please note: The I/O Fund conducts research and draws conclusions for the company’s portfolio. We then share that information with our readers and offer real-time trade notifications. This is not a guarantee of a stock’s performance and it is not financial advice. Please consult your personal financial advisor before buying any stock in the companies mentioned in this analysis. Beth Kindig and the I/O Fund own shares in NVDA at the time of writing and may own stocks pictured in the charts.
Leo Miller, AI and Semiconductor Investment Writer at I/O Fund, contributed to this analysis.
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