BigBear.ai: The Next Palantir or a Risky Investment?

Introduction to BigBear.ai and Its Recent Surge

BigBear.ai, a data analytics service provider, has been making waves in the stock market with a staggering 415% rise in its shares. Often touted as the "next Palantir," the company has gained significant attention following its recent contract with the U.S. Department of Defense to improve geopolitical risk assessments using artificial intelligence. While this news has driven optimism, analysts and investors remain cautious, especially given the stock’s high short interest ratio of 22.6%, as reported by the Wall Street Journal. Despite the enthusiasm, questions linger: Can BigBear.ai sustain this momentum, or is it overvalued compared to its fundamentals?

BigBear.ai’s Performance and Prospects

BigBear.ai specializes in building software models designed to enhance operational efficiency. In 2023, approximately one-third of its revenue came from government agencies, with the remainder sourced from private enterprises, according to SeekingAlpha. The company has recently made strategic moves, including the appointment of Kevin McAleenan, a former official with ties to the Trump administration, as CEO in January 2025. McAleenan’s connections could prove instrumental in securing additional government contracts, a key driver of growth for the company.

In recent months, BigBear.ai has secured notable contracts, including a deal with the Department of Defense to further develop its Virtual Anticipation Network, as well as a separate contract with the Navy. These wins have contributed to the stock’s upward trajectory, with shares more than doubling in value following the announcement. However, despite this growth, BigBear.ai remains unprofitable. In the quarter ending in September 2024, the company reported a 22% revenue increase to $41.5 million but incurred a negative net profit margin of 29.3%, according to Google Finance. Analysts warn that the stock’s current valuation may be driven more by speculation than underlying fundamentals, with SeekingAlpha noting that the company lacks the profitability and product portfolio strength of its competitor, Palantir.

Why Palantir’s Shares Could Rise Further

Palantir, often considered the benchmark for companies like BigBear.ai, has experienced a 350% rise in its shares over the past year. This surge is attributed to stronger-than-expected fourth-quarter results and guidance fueled by artificial intelligence. Palantir’s commercial revenue grew by 64% in the quarter, while U.S. government sales increased by 45%, as reported in a Forbes post. CEO Alex Karp highlighted the company’s unprecedented momentum, driven by its AI platform, which integrates disparate data sources into actionable models for clients.

Palantir’s growth is further supported by its expanding government contracts. For instance, the company recently extended its deal with the U.S. Army to a potential $619 million through 2028 and continues to deepen its AI collaboration with the U.S. Special Operations Command, as noted by Bloomberg. Additionally, Palantir’s ontology service, which helps commercial clients represent and connect entities, data, and processes, has seen growing demand. With its strong financial position and proven track record, Palantir appears to be a more stable and attractive investment option compared to BigBear.ai.

Palantir Stock: A Better Bet Than BigBear.ai?

When comparing the two companies, Palantir emerges as the more robust investment. While BigBear.ai struggles with profitability and a limited product portfolio, Palantir generated $2.8 billion in revenue in 2024—17 times that of BigBear.ai’s $165 million. Furthermore, Palantir has consistently delivered positive free cash flow, whereas BigBear.ai continues to burn through cash, raising concerns about potential stock dilution if the company raises capital by selling shares.

Analysts have also flagged BigBear.ai’s stock as overpriced. Wall Street analysts project a 6.25% decline in the stock to reach an average target price of $7.50, while insider transactions totaling $93 million over the past three months suggest that company executives may not see significant upside potential. In contrast, Palantir, while expensive, boasts stronger fundamentals. Morgan Stanley analyst Sanjit Singh acknowledged the company’s robust outlook, noting that Palantir’s growth expectations have exceeded earlier projections.

The Future of BigBear.ai: Risks and Opportunities

While BigBear.ai’s stock may face challenges, it is not without opportunities. The high short interest ratio of 22.6% indicates that a significant portion of investors are betting against the stock. However, if the company can deliver expectation-beating growth, improve profitability, and secure additional high-value contracts, it could surprise skeptics and drive the stock higher. BigBear.ai’s recent contract wins and the leadership of its new CEO, Kevin McAleenan, suggest that the company is positioning itself for further success in the government sector.

That said, investors should approach BigBear.ai with caution. The company’s lack of profitability, reliance on government contracts, and speculative valuation make it a risky investment. Palantir, on the other hand, offers a more stable alternative with a proven track record and stronger financials. For those willing to take on higher risk for the potential of high returns, BigBear.ai may still be worth considering. However, for most investors, Palantir seems to be the safer and more sustainable choice.

Conclusion: Navigating the AI-Driven Market

The rise of BigBear.ai and Palantir highlights the growing importance of artificial intelligence in driving both government and commercial operations. While BigBear.ai shows promise, particularly in its ability to secure government contracts, its unprofitability and speculative valuation raise red flags. In contrast, Palantir’s demonstrated profitability, robust product portfolio, and strong revenue growth make it a more attractive option for investors seeking exposure to the AI-driven analytics sector.

For investors weighing their options, it’s crucial to balance risk and potential reward. While BigBear.ai could deliver surprises if it secures significant new contracts or improves its financial health, Palantir’s stability and proven performance make it the more reliable bet. As the AI landscape continues to evolve, companies that can deliver actionable insights and maintain profitability will likely emerge as leaders in this competitive space.