Better Artificial Intelligence Stock: Palantir vs. BigBear.ai

Palantir (NASDAQ: PLTR) and BigBear.ai (NYSE: BBAI) are both enterprise AI software companies which crunch massive amounts of data for large organizations. Palantir, which went public via a direct listing in September 2020, is a much larger company which analyzes data for the top U.S. government agencies and big enterprise customers.

BigBear.ai, a smaller company which went public by merging with a special purpose acquisition company (SPAC) in December 2021, develops modular AI tools which can be plugged into an organization's existing software infrastructure. It also integrated those "observe, orient, and dominate" modules into Palantir's platform in late 2021.

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Palantir and BigBear.ai have gone in opposite directions since their market debuts. Palantir, which opened at $10 on its first day, now trades at nearly $120. BigBear.ai, which opened at $9.84 after its SPAC merger, now trades at about $9. Let's see why the bigger AI company outperformed the underdog, and if it's still the better investment now.

The differences between Palantir and BigBear.ai

Palantir operates two main data mining platforms: Gotham for its government customers and Foundry for its enterprise customers. Gotham already accumulates data for the CIA, NSA, FBI, ICE, and all branches of the military, while Foundry is doing similar tasks for big companies like Morgan Stanley and Airbus.

Palantir accumulates data from disparate sources, identifies trends, and organizes that information to help its clients make smarter data-driven decisions. In 2024, the company generated 37% of its revenue from commercial customers and the remaining 63% from government customers. Commercial business is growing faster than the government business, which often experiences lumpy growth from the timing of contracts.

Palantir's co-founder and CEO Alex Karp expects the company's near-term growth to be driven by U.S. commercial customers rushing to upgrade their AI and analytics capabilities, as well as the ongoing geopolitical conflicts in Europe and the Middle East.

BigBear.ai plugs its analytics modules into an organization's existing software instead of replacing existing applications. Its modules are also installed on edge networks, which process the data flowing between the network core and end-user services. That flexibility makes it an attractive alternative to larger and stickier cloud-based analytics platforms.

BigBear.ai also acquired the AI vision technology developer Pangiam last March. Pangiam's CEO Kevin McAleenan, who previously worked for nearly two decades in the U.S. government and served as acting secretary of the DHS during the first Trump Administration, succeeded Mandy Long as BigBear.ai's CEO this January.

Which AI company is growing faster?

Palantir's revenue rose 17% in 2023 and 29% in 2024. That acceleration was driven by the warming macro environment, the growth of its U.S. commercial business, and new government contracts. The company also turned profitable on a generally accepted accounting principles (GAAP) basis in 2023 and more than doubled its GAAP EPS in 2024.

That consistent profitability led to Palantir's inclusion in the S&P 500 last September and the Nasdaq 100 last December. Its ascension to those major indexes seemed to confirm its evolution into a blue chip tech giant. For 2025, Palantir expects revenue to grow 31%, while analysts expect its GAAP EPS to grow another 63%.

BigBear.ai's revenue only rose 6% in 2022 and flatlined in 2023. The company blamed that slowdown on the macro headwinds, tougher competition, and the bankruptcy of its leading customer Virgin Orbit in 2023.

But for 2024, the company expects revenue to rise 6% to 16% as it integrates Pangiam and gains more government contracts. For 2025, analysts expect its revenue to grow 12% from the midpoint of that forecast.

The bulls likely believe Kevin McAleenan, with his extensive government connections, can secure more government contracts for BigBear.ai in the future. But its biggest government deal so far, a new $165 million automation contract with the U.S. Army, is actually spread out over the next five years. A lot of its other publicized partnerships, data-sharing deals, and demonstration aren't generating any meaningful revenue yet. The company is also deeply unprofitable on a GAAP basis, although analysts expect its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) to turn positive in 2025.

Which stock is the better value?

Palantir's revenue growth is accelerating and its profits are rising, but it's valued like a meme stock at 385 times its forward GAAP earnings and 70 times its projected sales for 2025. Those bubbly valuations could set it up for a steep drop if the market pulls back. BigBear.ai also isn't a screaming bargain at 13 times this year's sales. I wouldn't buy either of these stocks right now as the market hovers near its all-time highs.

But if I had to choose one over the other, I'd nibble on BigBear.ai instead of chasing Palantir. Palantir is a solid AI company, but investors shouldn't pay the wrong price for the right stock. Palantir's stock could easily be cut in half over the next few weeks and still be considered too expensive relative to its growth potential.

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Leo Sun 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.