BigBear.ai vs. Palantir: Which AI Defense Stock Is the Better Bet?

Core Insights - Artificial intelligence (AI) is transforming the defense and national security sectors, presenting investment opportunities in companies that integrate advanced software with government contracts [1] - BigBear.ai (BBAI) and Palantir Technologies (PLTR) are leading players in this space, each with distinct scales, financial strengths, and strategies [1][2] Company Overview - BigBear.ai is focused on defense applications, utilizing biometric identity, supply chain security, and autonomous systems [2] - Palantir is a global leader in enterprise AI, with a growing customer base in both government and commercial sectors [2] Stock Performance - Both companies have shown strong stock performance in 2025, with BigBear.ai up 79.1% year-to-date (YTD) and 52.4% in the last three months, while Palantir has increased 140.8% YTD and 27.1% in the last three months [3] - These gains reflect investor interest in AI applications in defense, although they also indicate differing risk-reward profiles [3] Financial Highlights - BigBear.ai has a strong balance sheet with $391 million in cash and a net positive cash position, allowing for growth investments [7][9] - Palantir achieved over $1 billion in Q2 revenue, marking a 48% year-over-year growth, and expanded adjusted operating margins to 46% [9][13] - Palantir secured a significant 10-year, $10 billion contract with the U.S. Army, consolidating previous agreements and enhancing its position in defense AI [13][14] Growth and Profitability - BigBear.ai's revenue for Q2 2025 fell 18% year-over-year to $32.5 million, with a net loss of $228.6 million primarily due to goodwill impairment [11] - In contrast, Palantir generated $569 million in adjusted free cash flow with margins of 57% and has posted eight consecutive quarters of GAAP profitability [15][16] Market Position and Valuation - BigBear.ai trades at an 18.59X forward price-to-sales ratio, significantly higher than its three-year median of 2.02X, indicating a need for improved execution to regain momentum [17] - Palantir's valuation stands at approximately 83.69X, reflecting high investor expectations for sustained growth, with a significant premium compared to peers [18] Future Outlook - The Zacks Consensus Estimate indicates a 58.5% growth for Palantir, while BigBear.ai's outlook suggests performance in line with the previous year [20] - BigBear.ai's growth is contingent on securing new federal contracts, while Palantir benefits from established government relationships and a robust commercial market presence [12][16] Investment Considerations - BigBear.ai presents speculative upside linked to defense funding and potential M&A opportunities, but its current financial losses and contract dependency pose risks [24] - Palantir is viewed as a more reliable long-term investment due to its strong revenue base, profitability, and consistent execution in a competitive AI landscape [25][26]