Better Stock AI: Palantir vs. BigBear.ai

Palantir (PLTR -1.41%) and BigBear.ai (BBAI -2.88%) provides artificial intelligence (AI) services to the public and private sector. Palantir’s two main platforms — Gotham for government customers and Foundry for commercial customers — aggregate data from disparate sources to help them make data-driven decisions. BigBear.ai develops modular data mining and analytics tools for edge networks and actually integrates its three core modules into Palantir’s Foundry platform.

BigBear.ai is much smaller than Palantir and went public through a merger with a special purpose acquisition company (SPAC) in December 2021. Shares opened at $9.84 in the first day of post-merger trading, but it now trades at about $1.50. Palantir went public through a direct listing in September 2020 and began trading at $10. It went through some wild swings over the past four years, but eventually tripled to around $30.

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The market clearly preferred Palantir over BigBear.ai because it was growing faster, more established, and more profitable. But will Palantir remain the best AI game over the now unloved for the next few years?

Palantir expects sales growth to accelerate with rising profits

Palantir was founded in 2003, and today, most US government intelligence and defense agencies already use the Gotham platform to process data. It boldly claimed it would become the “default operating system for US government data” in its S-1 filing, but has aggressively expanded Foundry over the past few years to reduce its reliance on government contracts.

Palantir’s revenue rose 41% in 2021, but rose only 24% in 2022 and 17% in 2023. That deceleration, which brought it below its previous goal of growing its top line by at least 30% annually to 2025, was mainly caused by the uneven timing of its government contracts and macroeconomic headwinds for the commercial sector. But as its growth cooled, the company cut expenses and became profitable on a generally accepted accounting principles (GAAP) basis in 2023.

Palantir expects its revenue to grow 23% to 24% this year as it wins new government contracts, expands its U.S. commercial business and launches new generative AI tools into its ecosystem. Analysts expect GAAP EPS to double. From 2023 to 2026, its revenue is expected to grow at a CAGR of 21% and EPS to grow at a CAGR of 56%. Those ratios would be impressive, but the stock still looks expensive at 133 times forward earnings and 21 times next year’s sales.

BigBear.ai is facing existential challenges

BigBear.ai, which was founded in 2008, generated $146 million in revenue in 2021. But its revenue grew just 6% to $155 million in 2022 and was roughly flat in 2023. That was well below the $388 million in revenue it had predicted. could generate in 2023 during its pre-merger presentation. It also remained unprofitable on a GAAP basis.

Management blamed the slowdown on the difficult macroeconomic environment and the bankruptcy of major client Virgin Orbit in 2023, but BigBear.ai also has serious customer concentration issues (49% of its revenue came from just three customers in 2023), it relies heavily on fixed rigids. – price contracts and face stiff competition from similar start-ups and larger technology companies.

Under the leadership of CEO Mandy Long, who took the helm nearly two years ago, BigBear.ai acquired AI technology Vision Pangiam in March to increase revenue, won several new government contracts and aggressively cut costs to -improve its cash flow.

Those efforts have produced some green shoots: its cash flow turned positive in the second half of 2023, and management expects its revenue to grow 6% to 16% for the full year as it integrates Pangiam . Analysts expect its revenue to grow at a compound annual rate of 12% from 2023 to 2025 as it narrows its net losses. From a valuation perspective, the stock looks very cheap at 3 times next year’s sales.

Buy Better: Palantir

Palantir is more expensive than BigBear.ai, but it expects to generate about 16 times more revenue this year, and its business model looks more sustainable. Large organizations will also gravitate to well-established companies like Palantir for their data mining and AI needs rather than untested individuals like BigBear.ai. I think Palantir stock — while expensive and volatile — will remain a more attractive AI play than BigBear.ai for the foreseeable future.