Palantir Technologies delivers a banner year for shareholders, driven by exceptional growth and accelerating profitability. As 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 look at other industry players following a similar path of disruptive innovation. BigBear.ai(NYSE: BBAI) is one such small company from the technology sector that is developing various AI applications with enormous potential.
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Could BigBear.ai be the next Palantir? Here’s what you need to know.
With a market cap of $550 million, BigBear.ai is small next to Palantir, which has grown to a stock value of $150 billion. Despite this significant difference in size, the two companies have some similarities. Both specialize in cloud-based software powered by AI and machine learning that allows organizations to analyze complex data sets to gain predictive insights. In fact, BigBear.ai and Palantir have an ongoing strategic partnership to integrate each other’s capabilities.
Features such as generative AI and workflow automation are proving to be a game-changer for productivity, capitalizing on strong demand from businesses across the economy. At this point, Palantir has been more successful so far with comprehensive end-to-end solutions, while BigBear.ai is only just building traction by targeting niche markets with specialized offerings.
A key theme for Palantir is the ability to move beyond its historic government and defense sector focus into commercial applications. In its last reported third quarter (for the period ending September 30), Palantir’s revenue rose 30% year over year, thanks precisely to large enterprise customers adopting the company’s Artificial Intelligence Platform (AIP). The revenue momentum has translated into sharply higher profits, with trends expected to continue into 2025 and beyond.
On the other hand, BigBear.ai still lacks that breakthrough moment, as most of its business is driven by a handful of large contracts in the Department of Defense. In the company’s third quarter (for the period ending September 30), BigBear.ai’s revenue rose a solid 22% from last year, although this follows a trend of weaker results in previous quarters.
Unlike Palantir, BigBear.ai is currently unprofitable and continues to lose money, putting pressure on its stock price. If BigBear.ai wants to become the next Palantir, it will have to achieve much stronger growth.
Metric
BigBear.ai 2024 estimate
Palantir Technologies 2024 estimate
Gain
$169 million
$2.8 billion
Change in turnover (YYY)
8.6%
25.5%
Earnings per share (EPS)
-$0.28
$0.38
Annual EPS Change (YOY)
N/A
52%
Data source: Yahoo Finance. YOY = year after year.
Where BigBear.ai sets itself apart is its early leadership in AI-powered computer vision. The company’s digital identity brand Pangiam uses biometrics with real-time images and videos to automatically detect anomalies and protect against threats. Several major airports worldwide are current BigBear.ai customers and use products such as the “TrueFace” and “veriScan” verification systems at their security checkpoints.
Ultimately, BigBear.ai’s appeal as an investment lies in its unique vision AI technology, which has applications far beyond transportation and logistics. The platform holds 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.
Beneficially, BigBear.ai’s stock trades at less than four times Wall Street analysts’ full-year revenue estimate, expressed as a price-to-sales (P/S) ratio. This level represents a deep discount to Palantir’s stock, which has exploded to an eye-watering multiple of 54 long-term sales. My interpretation is that Palantir has become very expensive, while BigBear.ai stock offers better value and likely has more upside potential in a scenario where results start to exceed expectations.
The key question for investors isn’t whether BigBear.ai will ever be more valuable than Palantir, but whether the stock can deliver a similar level of multibagger performance. I believe that opportunity is on the table, with 2025 being a pivotal year for the company to demonstrate that its differentiated AI solutions can find new commercial use cases.
In the meantime, BigBear.ai’s weaker fundamentals and financial uncertainties could keep the stock under pressure. For investors with a long-term horizon and who can handle 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 holds positions in and recommends Palantir Technologies. The Motley Fool has a disclosure policy.
Could BigBear.ai Become the Next Palantir Technologies? was originally published by The Motley Fool