BigBear.ai vs. C3.ai: Wall Street's Mixed Signals on AI Stocks

High-flying artificial intelligence (AI) stocks have taken the market by storm, with investors eager to capitalize on the growing market size and potential of AI technologies. Two companies that have caught the eye of investors are BigBear.ai (BBAI) and C3.ai (AI), both of which operate in the AI space and have experienced significant volatility since their market debuts. However, Wall Street analysts have mixed opinions on these two stocks, with some believing one could soar by as much as 108%, while others advise investors to sell the other.

BigBear.ai: A Potential Home Run

BigBear.ai describes itself as a leading provider of AI-powered decision-making solutions, focusing on three markets: national security, supply chain, and digital identification. The company's solutions offer predictive and forecasting capabilities, helping clients manage risk, oversee transportation, and streamline processes. Through the first nine months of 2024, BigBear.ai generated roughly $114.5 million in revenue, comparable to the same period in 2023. However, the company also generated much higher losses so far in 2024, largely due to a one-time $85 million goodwill impairment charge.

Four analysts have issued research reports on BigBear.ai over the last several months, with three rating the stock as a buy and one saying hold. The average price target of $4.33 implies about 28% upside from current levels, but the highest price target of $7 implies 108% upside. H.C. Wainwright analyst Scott Buck recently issued a report, citing increasing demand for the company's products and the exchange and extension of a senior convertible note, removing near-term dilution risk. Buck also believes pure-play AI companies deserve higher valuations.



However, investors seem worried about BigBear.ai's balance sheet and wonder whether the company will eventually need to raise more capital and dilute shareholders. Moreover, the lack of revenue growth is concerning, given that the company is trying to position itself as a growth stock. BigBear.ai certainly has potential, but it probably makes sense to start with a small position until more revenue growth materializes.

C3.ai: Mixed Analyst Opinions

C3.ai has built a platform that makes it easier for companies to develop enterprise AI solutions. The company's platform enables data integration and management services, AI app development, security services, and an AI studio for developing apps without extensive coding. In its most recent quarter, C3.ai grew revenue by 29%, its highest growth rate over the last two years. Revenue through the first six months of C3.ai's current fiscal year is up nearly 24% from the same period a year ago. However, losses over this period have only narrowed by about 4%.

While there are four sell ratings on the stock, the average price target implies upside, suggesting that some analysts still see potential in the company. C3.ai's partnership with Microsoft's Azure platform could help the company attract more customers and grow its business. However, the company's high valuation may be a concern for some investors, as it trades at 7 times expected forward sales.



The AI Market: A Growing Opportunity

The AI market is expected to grow at a CAGR of 33.1% from 2021 to 2028, reaching a market size of $190.61 billion. This growth is driven by the increasing adoption of AI in various industries, such as healthcare, finance, and retail. As AI technologies continue to advance, companies like BigBear.ai and C3.ai are well-positioned to capitalize on this growth.

Investors should carefully consider the risks and challenges faced by each company before making a decision. While BigBear.ai has the potential for significant growth, its financial performance and valuation may raise concerns for some investors. C3.ai, on the other hand, has shown strong revenue growth but faces competition and market saturation challenges. Ultimately, the AI market's growth prospects and the specific strengths and weaknesses of each company will determine their long-term success.

Important note: Investors are reminded to do their due diligence and not rely on the information provided as financial advice. Consider this article as supplementing your required research. Please always apply independent thinking.