Palantir’s Big Pullback: Is BigBear.ai the Smarter AI Stock Pick?

A Rough Two Weeks for Palantir

Over the past two weeks, artificial intelligence (AI) darling Palantir Technologies (NASDAQ:PLTR) has taken a significant hit, shedding 15% of its market value. Despite reporting a strong second-quarter earnings beat and securing a massive $10 billion, 10-year contract with the U.S. Army, the stock’s lofty valuation appears to be the culprit behind the sell-off. 

Trading at a forward P/E of around 189, Palantir’s meteoric rise — up 391% over the past year alone — has left it vulnerable to corrections as investors question its ability to sustain such premiums. 

Meanwhile, BigBear.ai Holdings (NYSE:BBAI), which operates in a similar AI and defense niche, has garnered attention with its own contract wins and a more reasonable valuation. Could BBAI, with its focus on government and commercial AI solutions, be a better bet for investors seeking exposure to this high-growth sector?

BigBear.ai’s Market Overlap with Palantir

BigBear.ai operates in the same AI-driven decision intelligence space as Palantir, targeting government and enterprise clients with solutions for defense, border security, and critical infrastructure. 

Like Palantir’s Gotham and Foundry platforms, BigBear.ai’s offerings, such as its ConductorOS platform, focus on real-time data analytics and AI orchestration. The company has shown progress in integrating its technology into high-profile settings, including Department of Defense exercises and partnerships with entities like Heathrow Airport. These alignments position BigBear.ai as a smaller-scale competitor to Palantir, capitalizing on the same demand for AI-powered insights in national security and logistics. 

However, while Palantir serves a broader client base and reported 48% revenue growth in Q2, BigBear.ai suffered an 18% plunge in revenue in the same period and year-to-date sales are down 7.7%. 

Notable Contract Wins, But Smaller Scale

Still, BigBear.ai has notched significant contract wins, such as a $165 million U.S. Army GFIM-OE deal and a recent Federal Aviation Administration contract. Its selection by the DoD’s Chief Digital and Artificial Intelligence Office for the Virtual Anticipation Network (VANE) prototype further underscores its relevance in defense AI. 

Additionally, international expansions, including biometric deployments at 12 airports and partnerships in the UAE and Panama, signal potential for growth beyond U.S. government contracts. 

However, these wins pale in comparison to Palantir’s $10 billion Army contract, which consolidates 75 contracts into one. BigBear.ai’s $380 million backlog is impressive for its size, but its heavy reliance on a few large clients — just four accounted for 52% of 2024 revenue — introduces significant revenue volatility.

A More Reasonable Valuation?

At a price-to-sales (P/S) ratio of about 13, BigBear.ai appears more attractively priced than Palantir’s 109x sales multiple. With a market cap of $2 billion, BBAI seems like a bargain compared to Palantir’s $376 billion valuation. However, this lower multiple reflects BigBear.ai’s slower growth and weaker fundamentals. 

Analysts project a near 16% revenue decline this year — in contrast to Palantir’s 45% growth — with it bouncing back only 13% in 2026 (Palantir is expected to see 39% growth next year). The company’s trailing gross margins at 28%, lag significantly behind Palantir’s 80%, signaling inefficiencies in scaling its operations. 

While BigBear.ai’s $390.8 million cash balance provides a buffer, its valuation is less compelling when weighed against its financial struggles and operational risks.

BigBear’s Red Flags

Despite its appeal, BigBear.ai’s recent performance raises serious concerns. The company’s Q2 revenue of $32.5 million missed analyst expectations by 21%, prompting a 30% stock plunge. BigBear.ai also slashed its full-year revenue guidance from a range of $160 million to $180 million to one of $125 million to $140 million, indicating it has operational challenges, particularly disruptions in Army contracts due to modernization efforts. 

Gross margins for the period contracted to 25% from 27.8%, and 46.7% share dilution in the first half of the year further eroded investor confidence. It also posted a $0.71 per-share loss, far worse than the expected $0.06 loss, underscoring its structural unprofitability. 

Heavy reliance on a few government contracts, combined with high R&D costs, highlights BigBear’s financial fragility. These issues, coupled with competition from high-margin players like Palantir, make BBAI stock a risky investment despite its lower valuation.

Key Takeaway

Palantir’s recent 15% pullback reflects its sky-high valuation, but its robust 48% revenue growth, high margins, and massive $10 billion contract make it a stronger long-term play than BigBear.ai. 

While BBAI offers a lower P/S multiple and notable contract wins, its shrinking revenue, low margins, and customer concentration risks outweigh its appeal. Investors seeking AI exposure should look beyond BBAI to more stable, high-growth alternatives, as its structural weaknesses suggest it’s more of a value trap than a distressed opportunity.

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