BigBear.ai vs. C3.ai: A Look at Two Competing AI Stocks

Artificial intelligence (AI) stocks are making waves in the financial world, with companies experiencing rapid growth and reaching extremely high valuations. Many investors remain optimistic about the future, believing that the upward trend will continue due to the vast potential of AI technology and its expanding market opportunities.

Among the companies benefiting the most from this surge is Palantir Technologies, a software company that empowers users to utilize AI for data analysis, significantly enhancing the efficiency of businesses and organizations. Palantir's software is used by numerous U.S. intelligence agencies for counterterrorism purposes, leading to a staggering 340% increase in its stock value in 2024. This remarkable performance has led investors to seek out similar companies in hopes of capitalizing on similar growth.

Two companies that have captured investors’ attention are BigBear.ai (BBAI) and C3.ai (AI). Both stocks have seen significant volatility in the market over the past year. Analysts from Wall Street are closely monitoring these AI companies, with projections indicating that one could rise by as much as 108%, while multiple analysts recommend selling the other.

BigBear.ai: Buy Rating and High Potential

BigBear.ai positions itself as a leading provider of AI-powered decision-making solutions. In early 2024, the company acquired Pangiam, which specializes in applying AI for global trade, travel, and digital identification.

The company's focus spans three primary markets: national security, supply chain management, and digital identification. In the government sector, BigBear.ai offers tools for predictive analysis and forecasting, which aid in risk management and the movement of goods and personnel in challenging scenarios. Its solutions also support the enhancement of vendor and supplier relationships.

In the supply chain market, BigBear.ai assists companies in planning their capital investments, building designs, and equipment acquisitions. The acquisition of Pangiam enriches BigBear.ai's offerings with AI-driven facial recognition capabilities that serve various industries.

During the first nine months of 2024, BigBear.ai recorded approximately $114.5 million in revenue, consistent with figures from the same timeframe in 2023. However, the company incurred significantly higher losses during this period, largely due to an unusual $85 million goodwill impairment charge. Most of BigBear.ai's revenue is derived from government contracts.

Recent research reports from analysts highlighted a positive outlook for BigBear.ai. Four analysts evaluated the stock, with three recommending a buy and one suggesting a hold. The average price target stands at $4.33, indicating roughly 28% upside potential from current prices. Notably, the most optimistic price target reaches $7, suggesting an impressive 108% upside. H.C. Wainwright analyst Scott Buck has pointed to increasing demand for BigBear.ai's solutions as a key factor for this optimism while noting the removal of near-term dilution risk through the exchange and extension of a senior convertible note. Buck highlights that pure-play AI companies typically should command higher valuations.

Currently, BigBear.ai is not profitable and trades at a forward price-to-sales ratio near 4.4, which is reasonable for a company in the AI sector. However, investor concern persists regarding the company's balance sheet and the possibility of future capital raises, which could dilute existing shareholders. Furthermore, the lack of noticeable revenue growth raises questions about the company’s ability to position itself as a true growth stock. While BigBear.ai has promising prospects, cautious investors may benefit from starting with a smaller position until more substantial revenue increases become evident.

C3.ai: Mixed Reviews and Concerns

On Wall Street, receiving a sell rating is a rare occurrence among analysts. Due to the nature of their work, analysts often avoid issuing sell ratings to maintain good relationships with the companies they cover. As a result, when an analyst does recommend selling, it can signal significant underlying issues.

Concerningly for C3.ai, four out of ten analysts who monitored the stock recently have issued sell ratings, according to reports. C3.ai has developed a platform that simplifies the creation of enterprise AI solutions, enabling companies to manage data integration, development of AI applications, security services, and even offers an AI studio for developing apps with minimal coding.

In November, C3.ai announced a partnership with Microsoft, allowing its platform to be available to commercial clients via Microsoft Azure.

In its latest financial quarter, C3.ai reported a revenue increase of 29%, marking its highest growth in two years. Year-to-date revenue for the current fiscal year has surged by nearly 24% compared to the same period last year. However, the company only managed to narrow its losses by about 4% during this timeframe, and it has yet to take on any debt.

Despite four analysts recommending a sell rating, the average price target for C3.ai suggests nearly 18% upside from its current price, with the highest target of $55 indicating over 73% potential growth. Recently, KeyBanc analyst Eric Heath downgraded the stock to an underweight rating with a price target of $29, expressing concerns about its valuation and profit projections, which appear inflated based on the company's current revenue growth of only 10%-20%. He argues that this leads to a poor risk-reward scenario.

Additionally, analysts from JPMorgan Chase downgraded C3.ai to an underweight position due to its inadequate growth and margin performance. While C3.ai may have superior recent revenue growth compared to BigBear.ai, it currently trades at a much higher valuation. Nonetheless, the company could be worth keeping an eye on for potential future investments.

AI, Stocks, Valuation, Growth, Investment