BigBear.ai vs. C3.ai: Wall Street Thinks One of These Palantir-Like Stocks Could Soar as Much as 108% but Several Analysts Say Sell the Other

Source The Motley Fool

High-flying artificial intelligence (AI) stocks have taken the market by storm, soaring to stratospheric valuations. Many investors think the party will continue considering the potential of AI and the growing market size.

Very few have benefited more than Palantir Technologies, a software platform that allows its users to leverage AI to analyze data and vastly optimize businesses and other organizations. Numerous U.S. intelligence agencies use Palantir's platform in their counterterrorism efforts and the stock rose a whopping 340% in 2024. Given Palantir's success, investors have been on the hunt for similar, lesser-known companies operating in the same space and perhaps with the same appeal.

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Two they have found are BigBear.ai (NYSE: BBAI) and C3.ai (NYSE: AI), which as a result have experienced plenty of volatility over the past year. Wall Street analysts are keeping a close eye on both AI stocks and think one can soar by as much as 108%, while several analysts are telling investors to sell the other.

BigBear.ai: Buy rating and potential home run

BigBear.ai describes itself as a leading provider of AI-powered decision making. Earlier in 2024, the company acquired Pangiam, a company that specializes in AI for global trade, travel, and digital identification.

The company focuses on three markets, including national security, supply chain, and digital identification. In government, BigBear.ai's solutions offer predictive and forecasting capabilities useful for managing risk, overseeing the transport of goods and people in difficult environments, event prediction, and facilitating relationships between vendors and suppliers.

In supply chain, BigBear.ai's capabilities help companies map out capital investment, building design, equipment purchases, and more. Pangiam brings AI-powered facial recognition capabilities for a variety of industries.

Through the first nine months of 2024, BigBear.ai generated roughly $114.5 million in revenue, which is comparable to the same period in 2023. BigBear.ai also generated much higher losses so far in 2024, largely due to a onetime $85 million goodwill impairment charge. The majority of the company's revenue comes from government contracts.

Four analysts have issued research reports on the stock over the last several months, according to TipRanks. Three analysts rate the stock as a buy and one says hold. The average price target of $4.33 implies about 28% upside from current levels.

However, the highest price target of $7 implies 108% upside. H.C. Wainwright analyst Scott Buck recently issued this report, citing increasing demand for the company's products and the exchange and extension of a senior convertible note, removing near-term dilution risk. Buck also believes pure-play AI companies deserve higher valuations.

BigBear.ai is not yet profitable and trades at a forward price-to-sales ratio of roughly 4.4, which isn't demanding for a company in the AI business. However, investors seem worried about the balance sheet and wonder whether the company will eventually need to raise more capital and dilute shareholders.

Moreover, the lack of revenue growth is concerning, given that the company is trying to position itself as a growth stock. BigBear.ai certainly has potential, but it probably makes sense to start with a small position until more revenue growth materializes.

C3.ai: Several analysts say sell, but average price target implies upside

On Wall Street, seeing a sell rating is rarer than you might think. Analysts might work for a bank trying to do business with a company the analyst is covering, so they usually try to avoid sell ratings if they can. Institutional investors and traders know this and you'll often see an analyst that is pessimistic on a company downgrade or maintain a hold rating but then lower their price target.

Seeing a sell rating should be a red flag for investors, which makes it more concerning to see four of the 10 analysts that have issued research reports in recent months telling investors to sell C3.ai, according to TipRanks.

C3.ai has built a platform that makes it easier for companies to develop enterprise AI solutions. C3.ai's platform enables data integration and management services, AI app development, security services, and an AI studio for developing apps without a lot of coding. The company claims it can help businesses streamline processes and unlock hundreds of millions or even billions of sustained value.

In November, the company announced a partnership with Microsoft's Azure platform, where its C3.ai platform will be available to commercial clients.

In its most recent quarter, C3.ai grew revenue 29%, its highest growth rate over the last two years. Revenue through the first six months of C3.ai's current fiscal year is up nearly 24% from the same period a year ago. However, losses over this period have only narrowed by about 4%. The company has also yet to incur any debt.

While there are four sell ratings on the stock, the average price target implies nearly 18% upside from current levels. The high price target of $55 implies over 73% upside. In late December, KeyBanc analyst Eric Heath downgraded the company to an underweight rating and $29 price target, citing concerns with the company's valuation and earnings estimates that looked too high. Heath doesn't believe the company warranted a price-to-sales ratio of 13.3 (at the time of the report) when the company is only growing revenue between 10%-20%, leading to a bad risk-reward proposition.

Analysts at JPMorgan Chase also downgraded C3.ai to underweight, citing the company's "subpar growth-plus-margin performance." In some ways, C3.ai is better positioned than BigBear.ai when you look at recent revenue growth and balance sheet trends, but it also trades at a much higher valuation. Still, the company at least deserves a spot on your watch list.

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JPMorgan Chase is an advertising partner of Motley Fool Money. Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends JPMorgan Chase, Microsoft, and Palantir Technologies. The Motley Fool recommends C3.ai and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

Disclaimer: For information purposes only. Past performance is not indicative of future results.
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