Palantir Technologies( PLTR 4.14%) has ranked among the most successful stocks in recent years, soaring an astonishing 2,500% since early 2023. Initially, Palantir focused its AI-powered data analytics services on government agencies before branching out to private sector clients after securing a strong foundation.
One company aiming to emulate Palantir’s trajectory is BigBear.ai( BBAI 4.42%). BigBear.ai also specializes in AI-driven data analytics, primarily serving government and related sectors with tailored AI solutions. It's worth noting, though, that BigBear.ai is a much newer entrant.
The ideal outcome for BigBear.ai shareholders would be for its shares to follow a similar upward trend as Palantir's. But is such a scenario realistic? Let’s take a closer look.
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BigBear.ai’s profit margins are underwhelming
As previously mentioned, BigBear.ai’s main focus is securing government contracts. Its largest agreement is with the U.S. Army’s Global Force Information Management-Objective Environment (GFIM-OE). This AI-based platform is designed to provide the Army with vital information needed for effective training, resourcing, equipping, and staffing for all missions.
BigBear.ai is also working on solutions for airport security. Its technology has been implemented in several airports in the United States and internationally to speed up processing for travelers arriving from abroad.
But these two contracts are unrelated, which highlights a major difference between BigBear.ai and Palantir. Palantir has a core product it adapts for both government and commercial users, customizing it for each client’s needs. In contrast, BigBear.ai develops every solution from scratch, which is not an efficient process.
This strategy leads to higher product development costs, which is apparent in its gross profit margins.
Data by YCharts.
Palantir’s gross margins have consistently hovered around 80%, whereas BigBear.ai’s margins have fluctuated between 20% and 35%. This is not encouraging for potential investors, as it greatly restricts BigBear.ai’s potential profitability even if it becomes fully profitable.
This is a significant concern, but the next comparison reveals yet another problem.
BigBear.ai's stagnant growth is highly concerning
With AI investments booming, companies in this sector should be experiencing rapid expansion. Palantir has seen its growth rate pick up pace lately, achieving an impressive 48% companywide revenue increase in the second quarter, with government revenue climbing 49%. BigBear.ai, on the other hand, hasn’t shown such strong results.
During Q2, BigBear.ai’s revenue actually declined by 18% year over year, attributed to efficiency-driven changes within the U.S. government. Although this may explain BigBear.ai’s situation, it’s not a universal government trend, as Palantir continues to achieve substantial growth in its targeted segments.
This lack of growth is a significant warning sign, especially given the current tailwinds in the AI market and BigBear.ai’s relatively modest scale—it reported just $32.5 million in Q2 revenue.
Given BigBear.ai’s lackluster growth and inability to achieve strong gross margins, it is unlikely to transform into the next Palantir. There are many other, more attractive AI stocks to consider, and investors would be wise to explore those before buying BigBear.ai. For those uncertain about choosing individual AI stocks, several compelling AI ETFs are available, offering broader exposure to the sector's growth rather than betting on a single company.
There are numerous superior investment opportunities compared to BigBear.ai, and investors should not spend their resources on a long shot when more reliable options exist.
