AI Defense Stocks: BigBear.ai vs. Palantir - Which Is Poised for Dominance?
Explore the strengths and risks of BigBear.ai and Palantir in the AI defense sector. Discover which stock has the edge in 2025. Learn why now.
Key Takeaways
- BigBear.ai's niche focus on defense and homeland security aligns well with OB3 funding.
- Palantir's broader enterprise reach and strong financials position it as a more stable long-term investment.
- Both stocks have seen significant gains, but BigBear.ai's smaller scale introduces more volatility.
- Palantir's recent 10-year, $10 billion contract with the U.S. Army solidifies its position in the defense sector.
AI Defense Stocks: BigBear.ai vs. Palantir - Which Is Poised for Dominance?
The landscape of artificial intelligence (AI) in defense and national security is rapidly evolving, creating lucrative investment opportunities. Two leading players in this sector, BigBear.ai (BBAI) and Palantir Technologies (PLTR), are vying for supremacy. Each company brings unique strengths and faces distinct challenges, making the choice between them a critical one for investors.
The Case for BigBear.ai: Niche Focus and Strategic Funding
BigBear.ai has positioned itself as a mission-ready AI company with a strong focus on defense and homeland security. The recent passage of the “One Big Beautiful Bill” (OB3), which allocates more than $300 billion in supplemental funding to the Department of Defense and Homeland Security, is a significant boon for the company. This funding is earmarked for border technology, biometrics, and defense autonomy, areas where BigBear.ai excels with solutions like ConductorOS (autonomous command and control), Shipyard AI (supply chain/shipbuilding), and veriScan (biometric identity solutions).
**Financial Strength and Strategic Partnerships:*
BigBear.ai has recorded its strongest balance sheet ever, with $391 million in cash and a net positive cash position exceeding debt. This liquidity provides the company with the resources to invest in growth and pursue mergers and acquisitions (M&A) opportunities. Recent partnerships in the UAE and Panama demonstrate its push for international expansion.
However, BigBear.ai’s financials are not without challenges. Second-quarter 2025 revenues fell 18% year over year to $32.5 million, and adjusted EBITDA turned more negative at $8.5 million. The company posted a net loss of $228.6 million, primarily due to goodwill impairment and derivative revaluation. Management has withdrawn adjusted EBITDA guidance for 2025 and now expects revenues of $125–$140 million, highlighting near-term execution risk.
The Case for Palantir: Scale, Profitability, and Diverse Revenue Streams
Palantir, on the other hand, has established itself as a global leader in enterprise AI, with a diverse customer base that includes both government and commercial entities. The company delivered a strong second-quarter 2025, surpassing $1 billion in quarterly revenue for the first time, up 48% year over year. Adjusted operating margins expanded to 46%, and the company generated $569 million in adjusted free cash flow with margins of 57%.
**Landmark Contracts and Revenue Visibility:*
Palantir’s contract momentum is unmatched. The company closed 157 deals worth more than $1 million, including 42 above $10 million. Total contract value bookings reached $2.3 billion, a 140% year-over-year increase. A landmark 10-year, up-to-$10 billion enterprise contract with the U.S. Army consolidates 75 prior agreements into one, cementing Palantir’s position as a central partner in defense AI.
Remaining deal value stood at $7.1 billion, up 65% year over year, providing significant visibility into future revenue. This contrasts sharply with BigBear.ai, which remains dependent on winning its next wave of awards.
Valuation and Growth Prospects
BigBear.ai is trading at an 18.59X forward 12-month price-to-sales (P/S) ratio, much higher than its three-year median of 2.02X and the Zacks Computer and Technology sector’s 7.15X. The stock’s sharp gains in recent months reflect optimism around OB3 funding and international expansion, but clear signs of improving execution or a shift in federal spending trends will be needed to maintain bullish momentum.
Palantir, trading at about 83.69X, is significantly more expensive relative to peers. With its stock up 140.8% year to date, investors are betting on sustained hypergrowth. Any slowdown could spark volatility, but the company’s strong financials and customer adoption provide a solid foundation.
Earnings Estimates and Future Outlook
Over the past 60 days, the Zacks Consensus Estimate for Palantir has moved higher, signaling stronger growth prospects. In contrast, estimates for BigBear.ai have deteriorated, with projected losses for 2025 widening. Current estimates point to 58.5% growth for Palantir, while BigBear.ai’s outlook suggests performance roughly in line with the prior year.
The Bottom Line
Both BigBear.ai and Palantir are well-positioned to benefit from the surge in AI-driven defense and security spending. BigBear.ai offers higher speculative upside tied to OB3’s generational funding wave, international partnerships, and potential M&A-driven scale. However, its current financial losses, reduced guidance, and contract dependency underscore its riskier profile. Palantir, with its billion-dollar quarterly revenue base, entrenched government relationships, and rapid expansion into U.S. commercial markets, stands out as the more reliable long-term compounder. Its strong profitability, ample cash reserves, and consistent execution make it a sturdier bet in an increasingly competitive AI landscape.
Frequently Asked Questions
How does OB3 funding impact BigBear.ai's prospects?
OB3 allocates significant funding to border technology, biometrics, and defense autonomy, areas where BigBear.ai has strong offerings. This aligns well with the company's mission and could drive significant growth if executed effectively.
What are the key financial strengths of Palantir?
Palantir has achieved a billion-dollar quarterly revenue, strong operating margins, and significant free cash flow. The company is also GAAP profitable and has a robust pipeline of future contracts, providing financial stability and growth potential.
What risks does BigBear.ai face in the near term?
BigBear.ai faces challenges such as declining revenues, negative EBITDA, and a significant net loss. The company's growth outlook depends heavily on securing new federal contracts, which introduces volatility and execution risk.
How does Palantir's contract with the U.S. Army impact its market position?
The 10-year, up-to-$10 billion contract consolidates 75 prior agreements and cements Palantir's position as a central partner in defense AI. This provides significant revenue visibility and strengthens its market position.
What is the valuation difference between BigBear.ai and Palantir?
BigBear.ai trades at an 18.59X forward P/S ratio, while Palantir trades at a much higher 83.69X. Palantir's higher valuation reflects investor expectations of sustained hypergrowth, but it also introduces higher risk in the event of a slowdown.
