What’s the Better Artificial Intelligence Stock to Buy: C3.ai or BigBear.ai?

The artificial intelligence (AI) sector is currently a hotbed for growth investors, boasting vast opportunities for advancements across various industries. Companies are increasingly leveraging AI to enhance operational efficiency, automate routine tasks, and innovate their service offerings. However, selecting the right AI stock remains a pivotal challenge. With numerous players in the market, not all will emerge as winners in this dynamic space.

This article examines two AI stocks that have garnered attention among retail investors: C3.ai (NYSE: AI) and BigBear.ai (NYSE: BBAI). Both companies are involved in AI-driven solutions, yet they come with distinctive risks and opportunities. As a potential investor, you may wonder which one presents a better addition to your portfolio.

Evaluating Growth Potential

When assessing the growth potential of C3.ai and BigBear.ai, it is essential to look beyond their offerings. While both companies provide AI solutions, the real question revolves around their financial health and growth trajectory. In reviewing their past performance, C3.ai has demonstrated a more steady and accelerating growth pattern over the last three years. This trend is a promising indicator of the company’s ability to capitalize on the overall growth of the AI landscape.

Conversely, BigBear.ai has shown considerable volatility in its growth rates. Although the management team touts a robust backlog of potential contracts, the reality is that not all of these opportunities may translate into revenue in the near term. A large portion of this backlog may include unexercised options, leading to uncertainty about whether it will positively impact the company’s bottom line.

Cash Flow Considerations

For investors evaluating high-growth stocks like C3.ai and BigBear.ai, a crucial factor to consider is operating cash flow. Both companies are currently unprofitable, and understanding their cash burn rate will help determine how effectively they can sustain operations. A high cash burn rate paired with a meager cash reserve can necessitate frequent stock offerings, which can lead to share dilution and negatively affect existing shareholders.

By the end of March, BigBear.ai reported cash and cash equivalents totaling $107.6 million. Given its burn rate of over $30 million annually, this cash position should sustain the company for several years, assuming expenses remain constant.

On the other hand, C3.ai had a cash and cash equivalents balance of $164.4 million as of the end of April. When factoring in marketable securities worth $578.3 million, C3.ai enjoys a total liquidity of $742.7 million. While its cash burn rate is slightly higher than BigBear’s, the stronger cash position provides C3.ai with more leeway before needing to seek additional funding.

Investment Recommendation

Based on the metrics discussed, C3.ai appears to be the superior investment option at this time. Its robust growth rates and healthier cash position make it a more promising choice compared to BigBear.ai. Although it’s paramount to note that C3.ai remains unprofitable and continues to burn cash, its recent trends suggest an upward trajectory that might be more sustainable in the long run.

Investing in the AI sector is not without its risks—both companies face uncertainty in their growth strategies and potential reliance on external funding. However, if forced to choose between these two stocks, C3.ai presents a more favorable risk-reward ratio, making it an astute selection for growth investors willing to navigate the evolving landscape of artificial intelligence.

As you contemplate your investment strategy in AI, it’s vital to continue tracking the broader industry developments, along with the individual performance of companies like C3.ai and BigBear.ai. Stay informed, assess the risks, and make decisions aligned with your financial goals and risk tolerance.

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