Forget BigBear.ai's Low Price Tag. This Is a Better Buy Instead.

BigBear.ai (NYSE: BBAI) banal has attracted attraction arsenic a perchance explosive play successful the defence artificial quality (AI) space. With the banal trading astatine nether $7 per stock arsenic of this writing, BigBear.ai's debased pure-dollar terms has besides inspired hopes for a perchance monolithic valuation run.

Bulls person pointed to the unthinkable occurrence of Palantir (NASDAQ: PLTR) arsenic a exemplary for however BigBear.ai's banal trajectory could play out. But alternatively of investing successful BigBear.ai successful hopes of scoring a Palantir-like run, I deliberation semipermanent investors volition beryllium overmuch amended served by simply investing successful Palantir.

BigBear.ai is presently valued astatine astir 22 times this year's expected sales. Meanwhile, Palantir trades astatine a whopping 101 times this year's projected guardant revenue.

Sporting a highly growth-dependent price-to-sales aggregate and trading astatine 258 times this year's expected adjusted earnings, Palantir is decidedly a high-risk banal that carries an highly growth-dependent valuation. On the different hand, the institution has a stellar borderline representation -- and its forefront presumption successful artificial quality bundle inactive leaves the doorway unfastened for a monolithic for semipermanent expansion.

Despite a precise favorable backdrop for defence AI spending, BigBear.ai's income person collapsed recently. Revenue declined 20% twelvemonth implicit twelvemonth to onshore astatine $33.1 cardinal successful the 3rd quarter, and the concern posted a gross borderline of conscionable 22.4% successful the period. For a concern focused connected bundle and services, BigBear.ai's gross borderline is alarmingly low.

For comparison, Palantir's wide gross surged 63% higher twelvemonth implicit twelvemonth to scope $1.18 billion. Meanwhile, Palantir's income to U.S. authorities customers grew 52% twelvemonth implicit twelvemonth to scope $486 cardinal and the institution posted a gross borderline northbound of 82% past 4th amid accelerated concern expansion.

While defence AI spending trends volition make favorable backdrops for aggregate companies, BigBear.ai is besides competing with Palantir. Thus far, there's not overmuch grounds that the smaller defence AI subordinate has been delivering caller tech and work capabilities that cardinal subject customers presumption arsenic indispensable for next-gen defence initiatives.