Federal Supremacy in Immigration Fuels Long-Term Gains for Border Security Firms

The Fifth Circuit's recent rejection of Texas's SB4 law, which sought to criminalize unauthorized border crossings and expand state-level immigration enforcement, has underscored a critical truth: federal authority over immigration remains unassailable. Yet, this judicial victory for federal supremacy does not signal the end of demand for border security solutions. Instead, it highlights the enduring need for infrastructure and technology to manage migration flows—a demand that is both politically insulated and financially lucrative. For investors, the lesson is clear: firms like CoreCivic, Palantir, and others at the nexus of detention infrastructure and border surveillance are positioned to thrive, regardless of state-level policy fluctuations.

The Legal Battlefield Masks an Unchanging Reality

The Fifth Circuit's April 2024 ruling blocking Texas's SB4 was a stark reminder of the U.S. Constitution's Supremacy Clause, which reserves immigration enforcement for the federal government. But while states like Texas and Arizona have repeatedly overreached in attempts to legislate immigration policy, the federal government's responsibility to secure borders—and the resources allocated to do so—remains a bipartisan priority. Even as courts invalidate state laws, the $23 billion allocated to U.S. Customs and Border Protection (CBP) in fiscal 2024 underscores a reality: rising migrant arrivals and geopolitical tensions ensure federal funding will remain robust, irrespective of who controls Congress or the White House.

The Investment Case: Durability in a Political Quagmire

The private prison and border tech sectors are beneficiaries of this bipartisan consensus. Companies like CoreCivic (CXW), which operates detention facilities for the federal government, and Palantir (PLTR), whose data analytics tools power immigration tracking systems, are shielded from state-level legal battles because their revenue streams depend on federal contracts. While Texas's SB4 might falter in court, the federal government's reliance on private contractors to manage detention centers and deploy surveillance technology is a nonpartisan fixture of border policy.

Consider CoreCivic's stock performance:

Despite political headwinds, CoreCivic's stock has risen 68% since 2020, even as it weathered criticism over detention conditions. This resilience reflects the inelastic demand for its services—a demand tied to CBP's mandate to process over 2 million migrants annually, a figure that has doubled since 2019.

Palantir, meanwhile, benefits from its role as a “data middleman” for agencies like U.S. Immigration and Customs Enforcement (ICE). Its software, used to analyze migrant routes and identify smuggling networks, has become indispensable. Palantir's government contracts grew 27% in 2023, driven by demand for AI-driven border analytics.

The Risks: Gridlock as an Advantage

Critics may argue that a sudden drop in migrant arrivals or a comprehensive immigration reform bill could disrupt this sector. But the likelihood of either is low. Migrant flows are driven by factors like Central American violence and climate migration—trends unlikely to reverse. Meanwhile, Congress's inability to pass immigration reform ensures that the status quo—reliance on detention and surveillance—will persist.

Even Democratic administrations, while critical of detention policies, have not reduced budgets for border infrastructure. The Biden administration, for instance, has fast-tracked $1.7 billion for new border tech systems, including AI-powered cameras and drones. This “both sides lose” dynamic—where neither party can afford to appear weak on border security—ensures steady demand for firms in this space.

The Takeaway: Bet on the Middlemen

Investors should view companies like CoreCivic and Palantir as “border infrastructure utilities”—firms whose earnings are tied to a geopolitical reality, not political whims. While state-level laws may wax and wane, the federal government's role as the ultimate enforcer ensures that these companies remain critical to the system.

The Fifth Circuit's rejection of SB4 was a victory for federal authority, but it did nothing to reduce the need for border security solutions. For investors, this is a decades-long play—one that will outlast any single court ruling or political cycle.

This chart reveals a steady rise, from 28% in 2010 to an estimated 42% in 2025—a clear signal of where Washington's priorities lie.

Investment Recommendation:
- Overweight CoreCivic (CXW) for its dominant detention-center portfolio.
- Hold Palantir (PLTR) as a play on data-driven border management.
- Monitor Boeing (BA) and Raytheon (RTX) for their emerging roles in drone and sensor systems.

The border security sector is not just resilient—it's a growth engine. Federal supremacy may block state overreach, but it guarantees one thing: there will always be a line to secure, and someone to build it.