Palantir Technologies is delivering a banner year for shareholders driven by exceptional growth and accelerating profitability. At the time of this writing, the stock has returned 285% year to date, amid market optimism that this artificial intelligence (AI) innovator is still in the early stages of a global expansion opportunity.
There’s a lot to like about Palantir, but investors may also want to take a look at other industry players following a similar path of disruptive innovation. BigBear.ai(NYSE: BBAI) is one such tech sector small-cap developing several AI applications with enormous potential.
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Could BigBear.ai be the next Palantir? Here’s what you need to know.
Image source: Getty Images.
With its $550 million market capitalization, BigBear.ai is tiny next to Palantir, which has grown to a $150 billion equity value. Despite this substantial size difference, the two companies have some similarities. Both specialize in AI and machine learning cloud-based software that helps organizations analyze complex data sets to gain predictive insights. BigBear.ai and Palantir even have an ongoing strategic partnership to incorporate each other’s capabilities.
Features such as generative AI and workflow automation are proving to be a game-changer for productivity, capturing strong demand from businesses across all corners of the economy. On this point, Palantir has been more successful thus far with comprehensive end-to-end solutions, while BigBear.ai is only just building traction by targeting niche markets with specialized offerings.
A major theme for Palantir has been its ability to expand beyond a historical government and defense sector focus toward commercial applications. Indeed, in its last reported third quarter (for the period ended Sept. 30), Palantir’s revenue soared by 30% year over year driven precisely by large enterprise customers adopting the company’s Artificial Intelligence Platform (AIP). The top-line momentum has translated into sharply higher earnings, with the trends expected to continue into 2025 and beyond.
On the other hand, BigBear.ai is still missing that breakout moment with the bulk of its business driven by a handful of large Department of Defense contracts. In the company’s third quarter (for the period ended Sept. 30), BigBear.ai’s revenue climbed by a solid 22% from last year, although that follows a trend of weaker results in prior quarters.
In contrast to Palantir, BigBear.ai is not currently profitable and continues to lose cash, which has kept its stock price under pressure. If BigBear.ai is going to be the next Palantir, it will need to deliver much stronger growth.
Metric
BigBear.ai 2024 Estimate
Palantir Technologies 2024 Estimate
Revenue
$169 million
$2.8 billion
Revenue change (YOY)
8.6%
25.5%
Earning per share (EPS)
-$0.28
$0.38
Annual EPS change (YOY)
N/A
52%
Data source: Yahoo Finance. YOY = year over year.
Where BigBear.ai stands out is through early leadership in the field of AI-powered computer vision. The company’s Pangiam digital identity brand leverages biometrics with real-time images and videos to automatically detect anomalies and secure against threats. Several major airports globally are current BigBear.ai customers, utilizing products like the “TrueFace” and “veriScan” verification systems in their security screening.
Ultimately, the allure of BigBear.ai as an investment lies in its unique vision-AI technology, which has applications far beyond transportation and logistics. The platform shows promise in transforming multiple industries, including healthcare diagnostics, agricultural monitoring, retail inventory management, and manufacturing quality control.
Investors confident in the company’s ability to execute a growth strategy by entering these new commercial markets have a good reason to buy the stock today.
Favorably, shares of BigBear.ai are trading at under 4 times its full-year Wall Street analyst revenue estimate as a forward price-to-sales (P/S) ratio. This level represents a deep discount to Palantir stock, which has exploded to an eye-watering forward sales multiple of 54. My interpretation is that Palantir has become very expensive, while shares of BigBear.ai offer better value and likely have more upside in a scenario where its results begin to outperform expectations.
The key question for investors is not whether BigBear.ai will ever be more valuable than Palantir, but if the stock can deliver a similar level of multibagger performance. I believe that possibility is on the table, with 2025 being a critical year for the company to demonstrate its differentiated AI solutions can find new commercial use cases.
In the meantime, BigBear.ai’s weaker fundamentals and financial uncertainties may keep shares under pressure. For investors with a long-term time horizon and who can stomach volatility, Bigbear.ai stock can work within a diversified portfolio.
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Dan Victor has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Palantir Technologies. The Motley Fool has a disclosure policy.
