In a landscape increasingly dominated by artificial intelligence, investors are looking closely at stocks like Palantir Technologies and BigBear.ai. Over the past year, these companies have emerged as prominent players in the AI sector, demonstrating significant growth and attracting the attention of market analysts. Palantir’s stock price skyrocketed by nearly 500%, while BigBear.ai gained more than 150%. These figures are impressive, but they also raise the question: which of these two stocks promises better long-term potential?
Focus on the Defense Industry
Both Palantir and BigBear.ai have established strong roots in the U.S. defense sector. Palantir, founded in the wake of the September 11 attacks, aimed to implement fraud protection tools like those used by PayPal to identify threats and enhance national security. Its flagship product, Gotham, excels in gathering and analyzing vast data from diverse sources, helping to track terrorist financing and identify high-value targets in military operations. As it stands, Palantir’s involvement with the government remains significant, with federal contracts making up 42% of its last quarter’s revenue.
BigBear.ai was formed from a merger of several companies, primarily focusing on analytics and systems integration for government contracts. Its partnerships span multiple government agencies including the Department of Defense, National Security Agency, and the Department of Homeland Security. As a government contractor, BigBear.ai aims to modernize IT systems within the defense and national security sectors. Despite its governmental focus, BigBear.ai is expanding its presence in the commercial sector, being utilized in logistics, manufacturing, and even threat detection systems at major airports.
Revenue Growth and Financial Health
While both stocks have shown robust performance recently, their revenue trajectories tell different stories. Palantir has experienced consistent and accelerating growth, driven by a surge of interest from U.S. commercial clients embracing its Artificial Intelligence Platform (AIP). Last quarter, Palantir’s revenue rose by 39% to $883.9 million, marking its seventh consecutive quarter of growth. This consistent performance is notable for potential investors seeking reliability.
Conversely, BigBear.ai’s revenue growth has been sporadic. For instance, while its revenue increased by 5% to $34.8 million last quarter, it has also seen drastic fluctuations — declining by 21% in one quarter and jumping by 22% in another. These inconsistencies highlight a significant risk, especially in a sector where government contracts and funding can often be unpredictable.
Moreover, the difference in gross margins between the two companies is stark. Palantir enjoys a high gross margin of 80.4%, reflective of its business-as-a-software model. In contrast, BigBear.ai’s gross margin was a mere 21.3% as of Q1, indicating that its business operations as a systems integrator are capital-intensive, requiring on-site employees and incurring higher costs.
Valuation Insights
When considering the investment landscape, valuation remains a crucial factor. BigBear.ai currently trades at a forward price-to-sales ratio of 7.2, which makes its stock appear much cheaper compared to Palantir’s staggering 75.6 ratio. On pure numbers, this might make BigBear.ai seem like a more attractive buy. However, potential investors should also take into account growth rates and the sustainability of those figures.
Palantir’s revenue growth and predictability far surpass BigBear.ai’s. Its business model, although priced at a premium, leverages both its strong government contracts and growing commercial opportunities. The data analytics space is vast, and Palantir’s diversified use cases—from assisting hospitals to energy companies—enhance its prospects.
Conclusion: The Better AI Stock for Investors
In sum, while both Palantir and BigBear.ai have made impressive strides in the AI market, the former presents a more compelling case for long-term investment. Despite its high valuation, Palantir’s consistent revenue growth, solid gross margins, and expansive reach across both government and commercial sectors position it well for future success. BigBear.ai may offer an attractive pricing metric at first glance, but its fluctuating growth and lower margins could present challenges for sustained profitability.
As AI continues to revolutionize industries, prudent investors need to analyze both quantitative and qualitative factors before making decisions. In this case, Palantir appears to be a superior stock to own over the long run, fortified by a robust business model and a promising outlook in the rapidly evolving AI landscape.
