Palantir vs. BigBear.ai: Which Is the Better Artificial Intelligence (AI) Software Stock?

Navigating AI Investments: Palantir vs. BigBear.ai & The Rule of 40

The AI revolution drives enterprise software investment. While Palantir Technologies and BigBear.ai show stock surges, smart investing looks beyond momentum to fundamental metrics. This post compares these AI software contenders using the Rule of 40, a benchmark for Software-as-a-Service (SaaS) businesses, assessing growth and profitability.

The Rule of 40: Explained

This key SaaS metric adds a company's revenue growth rate to its free cash flow margin. A firm exceeding 40% shows expansion without financial strain. While free cash flow is preferred, some use operating income or EBITDA margins. Understanding non-GAAP adjustments is important, but the Rule of 40 is a good comparative tool.

Financial Comparison: Palantir Dominates

Palantir Technologies: Strong Performance

Palantir achieved a Rule of 40 score of 83% in Q1, combining 39% revenue growth with a 44% adjusted operating income margin. This balanced score highlights Palantir's success and deployment of its AI platforms: Foundry and Gotham. Its Rule of 40 score has more than doubled in two years, showcasing efficiency and market traction.

BigBear.ai: Financial Weakness

BigBear.ai's Q1 performance reveals a troubling picture: 5% revenue growth, a negative 24% free cash flow margin, and a negative 20% adjusted EBITDA margin. These result in Rule of 40 scores of -19% (free cash flow) and -15% (adjusted EBITDA). These negative figures indicate muted growth and an unproven path to profitability; BigBear.ai's AI ventures haven't yielded strong financial returns.

Verdict: Fundamentals Over Hype

The Rule of 40 disparity is evident. Palantir's strong performance translates its AI platform success into sustainable financials, showing revenue growth and high profitability. This signals a healthy, demand-driven business. BigBear.ai's stock surge appears driven by bullish market narrative, not internal financial strength. Relying on hope for success transfer, especially with weak financials, is not sound. Long-term value is built on solid fundamentals and proven profitability.

For investors in AI, prioritize financial assessment over short-term stock movements. The Rule of 40 is an invaluable framework. Palantir, with superior metrics, emerges as the investment choice, demonstrating benefits and value beyond market sentiment.