Better Small-Cap Artificial Intelligence Stock: BigBear.ai vs. Innodata

The stock market's turbulent start to 2025 stands in sharp contrast to the string of record-breaking highs of 2024. Yet, investors can find reassurance in the artificial intelligence (AI) revolution, which remains in full swing. Breakthroughs in automation and machine learning are proving transformative to the global economy by empowering businesses to attain new levels of productivity.

Industry giants often steal the spotlight in the fast-changing world of AI, but the future of innovation might hinge on emerging disruptors. BigBear.ai (NYSE: BBAI) and Innodata (NASDAQ: INOD) are two small caps leveraging AI-powered applications into significant long-term opportunities.

With both stocks down sharply from their recent highs amid the broader stock market sell-off, let's discuss whether BigBear.ai or Innodata is the better AI stock to buy right now.

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Image source. Getty Images.

The case for BigBear.ai

The appeal of BigBear.ai lies in its pure-play focus on artificial intelligence. It specializes in delivering AI-driven decision intelligence through its platform, which extracts insights from vast datasets.

The company's technology has proved its value in highly complex national security applications, winning major government contracts, including with the Department of Defense. It is also expanding commercially into supply chains and logistics, as well as the healthcare and life sciences market.

The company's early leadership in computer vision could be its most exciting opportunity and key growth driver. Its Pangiam digital identity brand uses images and biometrics for real-time threat detection and operational workflows.

Notably, major global airports and the Department of Homeland Security are current customers, having adopted its Trueface and veriScan systems for security screening.

For the year ended Dec. 31, 2024, BigBear.ai reported $158 million in revenue, a modest 2% year-over-year increase with growth muted by a comparison with the completion of a significant 2023 contract. However, the company's order backlog is more promising, surging 150% to $418 million -- substantial underlying demand that bolsters its growth trajectory.

Though currently unprofitable, the company has issued guidance for a narrowing net loss, supported by a balance sheet with over $115 million in cash. This financial flexibility allows the company to pursue its strategic goals.

Investors who believe BigBear.ai is still in the early stage of capitalizing on a significant opportunity may find the stock a compelling buy-and-hold prospect for the long run.

The case for Innodata

Innodata has quickly emerged as a leader in a crucial aspect of AI that's often overlooked: data preparation. The company's technology focuses on gathering, cleaning, and organizing raw information, such as text, pictures, and videos, which is ultimately used to train AI models with high-quality input. This expertise has become increasingly important in generative AI applications that require mitigating potential biases within the data.

With a $1.2 billion market capitalization, Innodata surpasses BigBear.ai's $900 million valuation. Its strength lies in its robust growth, with 2024 revenue surging 96% year over year to $171 million, driven by expanding relationships with "Magnificent Seven" companies as key customers.

Notably, Innodata achieved profitability in 2024, reporting $28.7 million in net income, a significant turnaround from the $900,000 loss in 2023. Management projects continued growth, targeting a 40% or higher revenue increase in 2025 alongside rising earnings.

This performance indicates that its shares are cheaper than BigBear.ai's. Trading at 4.8 times projected year-ahead sales, its forward price-to-sales ratio (P/S) represents a discount compared to BigBear.ai's 5.2 multiple.

And Innodata's forward price-to-earnings ratio (P/E) of 43 is definitely interesting, if not outright compelling, considering its earnings momentum, while BigBear.ai is still trying the reach breakeven.

BBAI PS Ratio (Forward) data by YCharts.

Decision time: The edge goes to Innodata

I'm bullish on both BigBear.ai and Innodata, as each possesses distinct strengths that could reward shareholders over the long run. But if forced to pick just one as the better AI stock today, I believe Innodata has the edge given its more proven product ecosystem and robust fundamentals.

Until BigBear.ai demonstrates it can effectively monetize its expanding order backlog, shares of Innodata should continue to outperform. The stock is a great option for investors seeking small-cap exposure to AI within a diversified portfolio.

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Dan Victor has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.