Could this under-the-radar artificial intelligence (AI) defense company be the next palantir?

Could This Under-the-Radar AI Defense Company Be The Next Palantir?

The intersection of artificial intelligence (AI) and defense technology has become a captivating space for investors, largely spearheaded by the remarkable ascent of Palantir Technologies. Palantir, specializing in AI operating systems like Foundry and Gotham, has solidified its position as a critical partner for entities including the U.S. military. Indeed, it was a top-performing stock in both the S&P 500 and Nasdaq-100 through the first half of 2025, with shares surging an astounding 80% and a monumental 427% over the last 12 months.

This explosive growth naturally leads to a search for the "next big thing" in the sector. Enter BigBear.ai (NYSE: BBAI), a smaller AI defense contractor that has also witnessed significant share price increases, up an impressive 357% over the past year. The question on many investors' minds is: could BigBear.ai truly emerge as the next Palantir?

Understanding the Shifting Sands of Defense Spending

Recent budgetary adjustments within the Department of Defense (DOD) provide crucial context for this sector. While initial news of an 8% annual budget reduction caused a momentary dip for defense contractors, a deeper look reveals a strategic pivot. Defense Secretary Pete Hegseth’s emphasis on the Software Acquisition Pathway (SWP) signals a move away from non-essential spending on consulting firms and legacy HR software towards a sharper focus on cutting-edge, tech-driven initiatives. This shift aims to free up capital to invest in advanced software services and vendors capable of handling sophisticated workflows, creating a tailwind for true innovators in AI defense.

BigBear.ai, with its CEO Kevin McAleenan, a former government official with close ties to the Trump administration, appears well-positioned to capitalize on this renewed government focus. The combination of strategic relationships and the DOD's increased reliance on leading software providers has certainly fueled investor optimism surrounding BigBear.ai's potential.

BigBear.ai vs. Palantir: A Crucial Financial Face-Off

While BigBear.ai's recent share price performance is eye-catching, a closer look at its financials compared to Palantir reveals a stark difference in operational strength and scale. This comparison is paramount for any investor seeking durable value rather than speculative gains.

• Revenue Disparity: Palantir’s government operations alone generated $487 million in revenue during the first quarter of 2025. In striking contrast, BigBear.ai’s total sales for an entire year stand at just $160 million. Palantir achieves nearly triple BigBear.ai's annual revenue from just its government segment in a single quarter.
• Gross Margin Efficiency: Palantir boasts robust gross margins, consistently hovering around 80%. BigBear.ai, however, struggles with inconsistent gross margins, topping out at less than 30%. This wide gap indicates a significant difference in profitability and efficiency in delivering their services.
• Profitability & Cash Flow: Over the last 12 months, Palantir reported a net income exceeding $570 million. BigBear.ai, with its comparatively small sales base and unimpressive margin profile, continues to burn through cash and report mounting losses. Sustainable growth is difficult to achieve when a company is consistently operating at a loss and requires significant capital infusion.

The Price-to-Sales (P/S) ratio also reflects this fundamental difference. BigBear.ai trades at a P/S of around 11, which might appear "cheap" compared to Palantir's P/S multiple of 120. However, this valuation disparity is not an oversight by the market; it reflects the underlying business realities. Palantir commands a premium because it possesses large, rapidly growing businesses in both public and private sectors that generate substantial profit margins. BigBear.ai, conversely, faces significant challenges in scaling its operations profitably while continuing to incur losses.

The Verdict: Is BigBear.ai a Buy?

Based on a thorough financial and operational comparison, BigBear.ai is not positioned to become "the next Palantir." Palantir operates in a league of its own within the defense tech space, characterized by superior scale, profitability, and market leadership. While BigBear.ai operates in an attractive sector with a favorable government spending shift, its current financial profile suggests it is not a formidable challenger to Palantir's dominance.

For investors seeking exposure to the AI defense sector, focusing on companies with proven profitability, strong margins, and significant market penetration remains a more prudent strategy. Investing is about long-term value creation, and while speculative plays can offer short-term thrills, fundamental strength is what ultimately drives sustainable returns. Therefore, despite its recent share price momentum, a deep dive into BigBear.ai's financials indicates a cautious approach is warranted. It’s crucial to distinguish between sector trends and individual company performance.