The S&P 500 has continued to notch new record highs this year, thanks in large part to soaring interest in artificial intelligence (AI) technology, which is fueling massive spending on both hardware and software. But as impressive as the S&P 500’s 17% gains over the past year have been, they pale in comparison to AI data analytics company BigBear.ai Holdings‘ (BBAI 9.63%) 273% climb over that period.

When a stock delivers returns like this in such a short amount of time, it’s understandable that some investors might start to think that buying and holding it could help them retire as millionaires. We’re in the early innings of AI, after all, so why can’t brighter days still be ahead for this stock?

Unfortunately, I don’t think that’s the right way to think about BigBear.ai. In fact, it might be best not to own this stock right now at all. 

Why BigBear.ai stock is soaring

There’s a lot of optimism among investors right now surrounding artificial intelligence stocks, as companies and governments invest in AI data center infrastructure and increase their use of AI software. One way BigBear.ai is tapping into this demand is by offering AI logistics and analytics, which can improve the efficiency of everything from supply chains to national security.

Management says the company’s total addressable market was $80 billion in 2024, but it forecasts that it could grow to $272 billion by 2028 for the combined private and public sectors. Part of the enthusiasm for the company’s shares comes as the U.S increases its spending on AI defense, a market that could be worth up to $70 billion by the mid-2030s. BigBear.ai makes a “significant portion” of its revenue from government contracts, and AI defense is an important component of its potential.

Also, because AI stock enthusiasm is sky high right now, BigBear.ai has at times surged for no obvious reason. Case in point: Last week, after trending down over a period of a couple of months, it jumped by more than 10% in a single session on no news at all.

Why BigBear.ai won’t help you retire a millionaire

If the good news is that BigBear.ai’s stock has made impressive gains over the past year (albeit quite bumpy ones), the bad news is that the company has little to show in the way of growth. Revenue fell 18% year over year to $32.5 million in Q2, following another decline in Q1.

With sales slipping, management recently cut its revenue guidance for the year to about $132 million — 22% lower than the midpoint of its previous forecast. Lower sales volumes from some government contracts were the problem during the quarter, but upon closer inspection of the details, BigBear.ai’s situation doesn’t look much better.

The company’s gross margins slid to 25% in the quarter, down from nearly 28% in the year-ago period. That continued a pattern of inconsistency over the past year. Worse, BigBear.ai is nowhere near profitable. Its non-GAAP (adjusted) earnings before interest, taxes, depreciation, and amortization (EBITDA) came to a loss of $8.5 million in the quarter, significantly worse than its adjusted loss of $3.7 million in Q2 2024.

The picture that should be coming into focus here is that BigBear.ai isn’t much of a growth stock. A temporary slowdown in business could be forgivable, but that’s not happening with the company. Instead, its sales continue to slide, and its losses are widening.

With all that in mind, I have serious doubts that BigBear.ai stock could grow from here in a way that would help its shareholders retire as millionaires. The stock is riding the AI wave right now, but financial reality will eventually catch up with it.

Chris Neiger has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Dr. Alex Karp isn’t your typical corporate executive. He doesn’t hold an MBA, and his public remarks often come in the form of unscripted, philosophical musings. Yet as CEO of data analytics powerhouse Palantir Technologies (PLTR -2.14%), Karp has led the company’s transformation from a secretive government contractor into a leading force in artificial intelligence (AI) adoption across the enterprise software landscape.

What many investors once viewed as a niche corridor, the intersection of defense operations and AI has swiftly become fertile ground supporting Palantir’s generational run. The company has secured some of the Department of Defense’s (DOD) most complex, mission-critical contracts, worth billions of dollars, cementing its role as a trusted partner in national security.

Following Palantir’s monster Q2 earnings report earlier this month, Karp’s confidence was on full display. During an interview on financial news program CNBC, he delivered a blunt message to Palantir’s rivals: “read ’em and weep.”

Let’s unpack what Karp really meant and assess why investors in competing platforms such as BigBear.ai (BBAI 5.39%) can no longer afford to ignore Palantir’s commanding lead in the AI defense arena.

Palantir is setting the pace to become the AI backbone for military operations

During the second quarter, Palantir’s revenue surged 48% year over year to $1.0 billion. While that growth is impressive on its own, the finer details reveal just how deeply Palantir has embedded itself in the military operations pocket of the AI landscape.

The company’s government segment grew 49% year over year, slightly outpacing overall growth. Drilling down further, Palantir’s U.S. government revenue rose by an even stronger 53% — reaching $426 million in the quarter. This momentum is supported by a string of high-profile Pentagon deals.

In March, Palantir partnered with defense contractors Northrop Grumman and L3Harris Technologies, along with autonomous systems specialist Anduril, in a $178 million U.S. Army deal to help build the Tactical Intelligence Targeting Access Node (TITAN) ground transportation system.

Just months later, the Army extended its relationship with Palantir, awarding a $795 million extension to continue using the company’s Maven Smart System(MSS) platform — bringing the total deal value above $1.2 billion.

More recently, Palantir further strengthened its public sector footprint with two additional contracts: a multiyear contract with the Army worth up to $10 billion, as well as a separate award to help develop a surveillance system for Immigration and Customs Enforcement (ICE).

Why is this important for BigBear.ai investors?

During BigBear.ai’s second-quarter earnings call, CEO Kevin McAleenan acknowledged that the company has “seen disruptions in federal contracts from efficiency efforts this quarter, most notably in programs that support the U.S. Army, as they seek to consolidate and modernize their data architecture.”

Given the details outlined above, there’s a strong possibility that the “disruptions” McAleenan referenced reflect Palantir winning these contracts. While BigBear.ai operates in some of the same broad fields as Palantir, such as AI analytics and machine learning, I think the comparison between the two companies is increasingly lopsided.

Each new government contract awarded to Palantir deepens its competitive moat. The company’s Foundry and Gotham platforms are evolving into a comprehensive, integrated ecosystem for the public sector — supporting a range of mission-critical needs.

Rather than true “network effects,” Palantir is enjoying a cumulative competitive edge that’s compounding with each deployment of its software — ultimately broadening the company’s footprint, strengthening its relationships, and making the cost of switching to competing platforms more costly.

These dynamics have effectively given Palantir a mini-monopoly on certain pockets of public sector deal flow, beyond the capacities of traditional defense contractors specializing in manufacturing hardware or equipment.

Is BigBear.ai stock a buy?

Karp’s soundbite wasn’t just swagger, nor was it merely aimed at short-sellers who have been betting against Palantir for years. It was a direct shot at every competing platform.

The 2025 stock chart reflecting Palantir and BigBear.ai tells a very different story.

BBAI data by YCharts

Palantir has built steady momentum on the back of rising deal flow, translating directly into accelerating revenue and profitability. BigBear.ai, by contrast, has seen far more volatile price swings, with its moves often driven by hype and the hopeful narrative that it could one day become the “next Palantir.”

That outcome appears increasingly improbable. Each new government contract Palantir secures widens the gap between it and smaller rivals struggling to keep pace.

For investors seeking exposure to AI’s role in military operations, Palantir offers a proven track record over speculative counterparts such as BigBear.ai, whose traction remains more aspirational than tangible.

BigBear.ai (BBAI -6.98%) and Innodata (INOD -2.94%) represent two different ways to invest in the booming artificial intelligence (AI) market. BigBear.ai develops AI modules for edge networks, while Innodata helps large companies prepare their data for AI applications.

Over the past 12 months, BigBear.ai’s stock surged more than 390% as it impressed investors with the stabilization of its business and the rollout of its biometric security services. Innodata’s stock rose about 140% as the market’s demand for its AI-oriented services soared. Should you still buy either of these high-flying AI stocks today?

The differences between BigBear.ai and Innodata

BigBear.ai’s three main AI modules — Observe, Orient, and Dominate — ingest data, identify trends, and predict future outcomes, respectively. It installs its modules on edge networks, which receive and process that data before it reaches its clients’ origin servers. It also shares that data with bigger AI-driven companies, such as Palantir.

Before BigBear.ai went public by merging with a special purpose acquisition company (SPAC) in late 2021, it claimed it could triple its annual revenue from $182 million in 2021 to $550 million in 2024. However, its revenue grew from $146 million in 2021 to only $158 million in 2024, as it grappled with tough competition, macro headwinds, and the bankruptcy of its top customer, Virgin Orbit. To boost its revenue and expand its ecosystem, it acquired the AI vision firm Pangiam last April.

Innodata went public back in 1993, but it didn’t attract much attention because it was a small analytics software provider that increased its revenue at a compound annual growth rate (CAGR) of 6% from 1994 to 2018. But in 2018, it launched a suite of task-specific microservices that could efficiently prepare large amounts of data for AI applications.

Five of the “Magnificent Seven” companies subsequently hired Innodata to prepare their AI-oriented data, and its annual revenue surged at a CAGR of 20% from 2018 to 2024. Its business boomed because those large tech companies often spend 80% of their time preparing the data for a new AI project and just 20% of that time training the actual algorithm. To speed up that inefficient process, those tech giants outsourced the preparation of that data to Innodata.

Which company could grow faster over the next three years?

Over the next three years, BigBear.ai’s growth should be driven by its swelling backlog of government contracts — which include new digital ID and biometrics services for the Department of Homeland Security (DHS) at airports and other ports of entry, a modernization project for the U.S. military’s Orion Decision Support Platform (DSP), and new supply chain initiatives. It could also attract more commercial clients as the macro environment warms up again.

During the same period, Innodata’s growth should be fueled by the rapid expansion of the generative AI market, which should drive its big tech customers to ramp up their spending on its data preparation services. It will likely attract even more large customers.

Data source: Marketscreener.

BigBear.ai’s revenue growth is expected to accelerate in 2025 and 2026, but analysts have not yet set any firm forecasts for 2027. Innodata’s revenue growth is expected to decelerate in 2026 and 2027 as it saturates its core customer base of Magnificent Seven customers, and its potential expansion into other markets hasn’t been factored into those estimates yet.

BigBear.ai is not yet profitable, but analysts expect it to narrow its net losses through 2026. Innodata turned profitable in 2024, and analysts expect its net income to grow at a CAGR of 16% through 2027 as its pricing power in its niche market improves and economies of scale kick in.

Which stock is a better value right now?

With a market cap of $2.1 billion, BigBear.ai trades at 12 times this year’s sales. Innodata, which is valued at $1.6 billion, trades at less than 7 times this year’s sales.

BigBear.ai looks a bit pricey if its revenue growth doesn’t accelerate in 2027 and beyond. Its growth in the government sector is encouraging, but those contracts can be less predictable than its commercial contracts. It’s also still growing at a slower rate than higher-growth AI leaders such as Palantir.

Meanwhile, Innodata appears to be a better value because analysts’ longer-term estimates for 2027 may be too conservative. With all that cash coming in from its Magnificent Seven customers, it could still have plenty of ways to expand both organically and inorganically over the next two years. So, while BigBear.ai and Innodata might both benefit from the secular expansion of the AI market, Innodata’s stronger growth, higher profits, and lower valuation make it the better buy.

Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Palantir Technologies. The Motley Fool has a disclosure policy.

BigBear.ai (BBAI -3.35%) stock closed out this past week’s trading with another run of big gains. The software and services company’s share price climbed 23.5% from the previous week’s market close amid a gain of 0.6% for the S&P 500 index.

BigBear.ai’s valuation surged again this past week, as investors continued to place bullish bets on companies with artificial intelligence (AI) tools tailored for the defense industry. The company’s share price is now up 101% over the past month and 214% over the past three months.

BigBear.ai stock continues to surge despite no major news

Even in the absence of apparent meaningful developments for the business, BigBear.ai stock has continued to rally. The company’s big valuation gains appear to be primarily connected to the defense-AI investment trend that has been hot in the market.

Palantir has been a top defense-AI play and reached a new valuation high in this week’s trading, and BigBear.ai stock has often seen valuation moves that correspond with pricing action for the software leader. Some investors are betting that BigBear.ai could emerge as a Palantir-like winner as demand for AI-powered defense software continues to increase.

What’s next for BigBear.ai?

The massive valuation run up for BigBear.ai stock appears to be out of step with the company’s recent business performance and near-term outlook. Despite demand tailwinds in the AI industry, the company’s revenue increased just 5% year over year in the last quarter. Growth is expected to accelerate in the second half of the company’s current fiscal year, but management’s midpoint target for annual sales growth of roughly 7.5% still raises valuation concerns following recent gains for the stock.

While it’s possible that continued acceleration for sales growth and margin improvements will pave the way for BigBear.ai stock to see more explosive gains above its current valuation level, huge valuation gains in the absence of major news suggest that the company is a risky investment right now. Investors will get a closer look at the business on Aug. 11, when the company publishes its next quarterly report.

Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.