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The report by Wedbush analysts dated Monday cited contacts in Washington. Palantir stock quickly jumped about 5% in morning trading today.

"Palantir could actually gain more deals and IT budget dollars across various government agencies," the analysts wrote. At the Pentagon, the company is in step with the current spending discipline and many of its existing contracts are high priority and not at risk of getting cut, Wedbush said.

The company is also set to gain from the Trump administration's focus on AI, a technology that's sent Palantir toward a $1 trillion market capitalization and could make it the next Oracle (ORCL-1.24%) or Salesforce (CRM-0.02%), the Wedbush analysts wrote.

The financial services firm set its price target for Palantir stock at $120 per share. The stock closed Friday $83.92, almost a third below its all-time high on Feb. 18. Even after the slide, the shares were valued at about 450 times historical earnings at the end of last week, compared with a Nasdaq average of about 42 times.

Palantir stock had taken a beating in the past few weeks on concerns that defense spending cuts could weigh heavily on the company, which reported a 45% increase in revenue from the U.S. government in the fourth quarter. Overall revenue was $828 million -- a 36% jump year-over-year and a 14% increase from the previous quarter.

Peter Thiel, a political ally of President Donald Trump, is a co-founder of and shareholder in Palantir.