C3.ai vs BigBear.ai: A Comparative Analysis of Emerging AI Stocks

Better Artificial Intelligence Stock: BigBear.ai vs. C3.ai | The Motley Fool

Artificial intelligence (AI) is a hot sector to invest in, and the fervor over AI is understandable. The tech has been hailed as "the next major wave of computing" by Microsoft CEO Satya Nadella. A number of businesses are using AI to transform industries. Two such companies are BigBear.ai (BBAI 44.81%) and C3.ai (AI 1.24%). The former employs AI to assist the defense and national security sectors. The latter delivers turnkey and custom AI software to organizations across several industries. Deciding which is the better AI investment is not a clear-cut choice. Let's dig into BigBear.ai and C3.ai to help you evaluate both. C3.ai has prospered amid the rapid rise in demand for AI. The firm's ability to quickly deliver turnkey AI applications is a strength, and adding to this is a robust partner network helping it drive business growth. For example, in September, C3.ai formed a partnership with Microsoft where the latter's sales team will sell C3.ai's solutions. Also, its partnership with Alphabet-owned Google Cloud contributed to the partner network closing 62% of all deals in C3.ai's fiscal second quarter, ended Oct. 31, 2024. Its partners helped C3.ai reach fiscal Q2 revenue of $94.3 million, a strong 29% year-over-year increase. Of this, 86% represented income from subscriptions. This is a strength because subscriptions provide C3.ai with recurring revenue. The company's Q2 sales growth led C3.ai to forecast revenue between $378 to $398 million for its 2025 fiscal year. This is good growth over the prior year's $310.6 million. Despite its strengths, C3.ai is not profitable. It exited fiscal Q2 with a net loss of $66 million. However, this was a drop from the prior year's net loss of $70 million, which shows C3.ai is trying to manage costs. BigBear.ai provides AI software for defense and national security. For example, its AI scans images of travelers at the Denver International Airport to automatically verify their identities. Its customers include the U.S. Air Force and Army, and it added the Navy on Jan. 30. In the third quarter, BigBear.ai experienced strong sales growth of 22% year over year to $41.5 million. Though that kind of increase is excellent, part of that came from last year's acquisition of facial recognition firm Pangiam rather than organic growth. In fact, looking at the company's first three quarters of 2024, its $114.4 million in sales is down from 2023's $114.6 million. This is a disappointing outcome for an AI company, but BigBear.ai estimates it will wrap up 2024 with revenue in the range of $165 million to $180 million, which is an increase from 2023's $155.2 million. In addition, BigBear.ai's Q3 gross margin was 26%, which is terrible for a software company. Contrast this to C3.ai's much healthier fiscal Q2 gross margin of 61%. With such poor margins, it's no wonder BigBear.ai is not profitable. It posted a net loss of $12.2 million in Q3. Many tech companies sacrifice profits to expand their businesses as fast as possible, but BigBear.ai's sales growth hasn't been consistent. This makes its lack of profitability particularly concerning. Perhaps that will change under new CEO Kevin McAleenan, who took over the top spot on Jan. 15. He was acting secretary of homeland security during President Trump's first term. With President Trump's return, Mr. McAleenan's timely appointment could help BigBear.ai expand its government business. After comparing BigBear.ai and C3.ai, at this point, the latter appears to be the better artificial intelligence stock, given its stronger financials and consistent sales growth. But there's more to uncover. C3.ai's partner network is key to its success, and one of its biggest partnerships is with energy company Baker Hughes, which sells C3.ai solutions to the oil and gas industry. The partnership expires in April of this year. If the partnership isn't renewed, the loss could be devastating to C3.ai. Some estimates indicate Baker Hughes is responsible for a third of C3.ai's sales. This wrinkle makes it more challenging to decide between C3.ai and BigBear.ai. Right now, the ideal course of action is to wait on investing in either company. C3.ai may still be the better investment choice over the long term, but it's best to see if the Baker Hughes partnership renews first. As for BigBear.ai, if its Q4 sales result in double-digit year-over-year growth, like it did in Q3, then that's an encouraging sign. Since it has a new CEO, BigBear.ai's performance should be monitored for a few quarters to see if Mr. McAleenan can deliver consistent sales growth and strengthen company financials before considering an investment.

Better Artificial Intelligence Stock: C3.ai vs. BigBear.ai | The Motley Fool

While mega-tech titans dominate headlines in the rapidly evolving landscape of artificial intelligence (AI), the next generation of innovation may lie in the hands of more specialized players. C3.ai (AI 0.26%) and BigBear.ai (BBAI -0.70%) are two small caps leveraging AI-powered applications into significant long-term growth opportunities. C3.ai is capturing strong demand for commercial AI solutions with tools to improve productivity and operational efficiency. BigBear.ai has carved out a niche supporting mission-critical intelligence for the defense sector while moving forward with a unique focus on vision-enabled AI. With both companies projecting a positive outlook, let's discuss whether C3.ai or BigBear.ai is the better AI stock right now. C3.ai has rapidly emerged as a leader in enterprise AI with its comprehensive suite of integrated software solutions. The company's C3 AI platform serves as a foundational starting point for organizations to develop, deploy, and operate custom AI-powered applications. C3.ai also offers ready-to-use AI programs, including generative AI capabilities, tailored to needs across multiple sectors. The strategy appears to be resonating in the market, with the company counting an extensive list of major corporations as current customers. In the company's most recently reported fiscal second quarter (for the period ended Oct. 31), revenue climbed by 29% year over year, accelerating from a 17% pace in the prior-year quarter. Perhaps C3.ai's biggest win this year was the announcement of a landmark strategic alliance with Microsoft to feature its portfolio of products on the Azure cloud ecosystem as a preferred vendor. Management believes the deal marks an inflection point for the company's growth runway. For the full year, C3.ai is targeting revenue growth of 22% to 28%. While the company is not yet profitable, the net loss continues to narrow, with fundamentals supported by a net cash balance sheet position. Ultimately, what makes C3.ai a great artificial intelligence stock is its profile as a proven innovator, combined with impressive operating momentum. Investors confident in the company's ability to execute its growth strategy have plenty of reasons to buy and hold the stock. With a market capitalization of approximately $1.2 billion, BigBear.ai is smaller than C3.ai's $4.1 billion valuation, generating slightly less than half of C3.ai's revenue during its most recent quarter. The two companies share similarities, as BigBear.ai offers several enterprise-scale AI and machine learning solutions in data analytics to help organizations make informed decisions. In the company's third quarter, revenue increased by a solid 21% year over year, driven by high-profile contracts with the U.S. Department of Defense for its ConductorOS platform. Where BigBear.ai stands out is through its computer-vision technology, which serves as a bridge connecting real-time images with actionable AI-powered insights. Several airports worldwide have already adopted BigBear.ai's solutions, implementing products like "TrueFace" and "veriScan" in their security screening processes. The vision-AI platform has the potential to transform various industries, with applications spanning medical diagnosis, agricultural surveillance, industrial inventory management, and manufacturing quality control. This exposure to a differentiated category within AI strengthens the case for why BigBear.ai is a compelling stock to own. In contrast to C3.ai, BigBear.ai's current growth rate is a bit lower, and the company carries more debt on its balance sheet. Nevertheless, it has demonstrated progress in controlling costs to minimize its financial loss. With BigBear.ai trading at a forward price-to-sales (P/S) ratio of less than 6 based on projected full-year revenue, shares of the company are at a deep discount to C3.ai stock, which commands a forward sales multiple of 11. By this measure, BigBear.ai appears to offer better value. There's a lot to like about both C3.ai and BigBear.ai, which may both be in the early stages of transformational growth. If forced to choose just one as the better buy today, I believe BigBear.ai shares may have more upside potential in 2025, based on a more attractive valuation heading into a critical year for the company to demonstrate its commercial potential. For investors with a long-term time horizon, BigBear.ai stock could complement a diversified portfolio.