The stock is up 11% this year, but revenue is projected to fall.
As much as artificial intelligence (AI) is a major growth driver for businesses in 2025, it’s also becoming increasingly important for U.S. government agencies. The White House Office of Management and Budget published two directives in April to support the use of AI in the federal government, including requirements to track the use of AI, adopt new technologies, and modernize AI governance.
That’s a major reason why Palantir Technologies (PLTR 3.08%) had such an incredible run in the last two years. Palantir’s Artificial Intelligence Platform (AIP) has been a huge success for both commercial clients and government agencies. Palantir reported $426 million in U.S. government revenue in the second quarter, up 53% from a year ago. It’s also why some stock-watchers are bullish on another AI company with big aspirations in BigBear.ai (BBAI 9.63%).
With a market capitalization of only $2 billion, BigBear.ai is just a fraction of the size of Palantir. But if it can approximate Palantir’s success, it could be a huge winner for investors in the next few years.
Is BigBear.ai stock a buy now?
Image source: Getty Images.
What BigBear.ai does
Strategically headquartered in a Maryland suburb of Washington, D.C., BigBear.ai provides artificial intelligence-based solutions, as well as machine learning, cloud-based big data analytics, and cyber engineering products. Its work includes supporting the Department of Defense’s Joint Planning and Execution Community (JPEC) through its Orion Decision Support Platform, which uses real-time insights and AI to assess threats and plan missions.
Another contract through the Pentagon’s Chief Digital and Artificial Intelligence Office will create custom AI models that will assess news media reports in countries that could potentially have conflict with the U.S.
BigBear.ai is also at the forefront of border security, deploying biometrics that provide real-time facial recognition. Its VeriScan product is used at more than a dozen international airports and more than 60 airlines to verify passengers before they fly.
Perhaps its most significant contract to date is a $165 million award issued last year to help the Army transform its legacy systems into an AI-powered integrated platform.
Why BigBear.ai has some red flags
BigBear.ai’s significant challenge — particularly when compared to Palantir — is scalability. While Palantir’s AIP platform is an expansive tool that can be used in a variety of uses and agencies, BigBear.ai so far is creating specific solutions for each contract. And that has its limitations.
Palantir functions at a comfortable 80% gross profit margin because it sells a platform it can deploy anywhere. Because BigBear builds one-off systems, its profit margin is only 28%.
BBAI Gross Profit Margin data by YCharts
And that shows in both companies’ revenue growth. Palantir’s annual revenue increased by 85% over the last three years, and the company in the second quarter hit $1 billion in quarterly sales for the first time. BigBear.ai, meanwhile, has only grown annual revenue by 8.7% since 2022.
BBAI Revenue (Annual) data by YCharts
BigBear.ai’s second-quarter revenue was $32.5 million, which was a decrease of 18% from the previous year. And the company reported a net loss for the quarter of $228 million. Management blamed the revenue drop on lower volume on some Army programs and lowered full-year guidance to revenue between $125 million and $140 million. A year ago, BigBear.ai had $158.2 million in revenue.
Analysts surveyed by Yahoo! Finance are expecting $133.5 million, which would be a 15.6% drop from a year ago. Next year’s revenue forecast is only at $152 million — still lower than 2024.
How to trade BigBear.ai stock now
BigBear.ai stock is up 11% so far this year, but it’s also been pretty volatile, down 69% from its all-time high. I understand why bullish investors want BigBear.ai to capture some of Palantir’s magic. But it’s tough sledding. I think it’s a red flag that in this environment, when the federal government is pushing AI so hard, BigBear’s annual revenue next year is projected to be less than it brought in during 2024.
Granted, BigBear.ai could catch some lightning in a bottle if it can figure out how to scale and improve its margins, grow revenue, and start earning a consistent profit. But until then, I see this as more of a speculative play than a strategic one. If you are a BigBear.ai bull, then it’s a good idea to put only a small percentage of your portfolio on speculative stocks like this one.
Patrick Sanders has positions in Palantir Technologies. The Motley Fool has positions in and recommends Palantir Technologies. The Motley Fool has a disclosure policy.
