C3.ai is delivering strong growth, while the stock trades at a much lower valuation than Palantir.
BigBear.ai is providing national security solutions powered by AI with a promising backlog of demand.
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The growth of artificial intelligence (AI) has the potential to create generational wealth for investors who buy and hold the right stocks. C3.ai (NYSE: AI) and BigBear.ai (NYSE: BBAI) are two relatively small companies that are getting a lot of attention from investors.
These stocks offer advanced AI software that could potentially set them up for explosive growth and shareholder returns. Let’s explore where these two businesses stand and whether investors should buy shares.
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C3.ai has been lost in the shadow of Palantir’s rise over the last few years, but it’s showing strong growth. It has reported four consecutive quarters of 20%-plus quarterly revenue increases, even while the stock trades at a price-to-sales multiple (P/S) that is a fraction of Palantir’s. The stock hit a 52-week high of $45 before tumbling to its current share price of $24.
The company provides enterprise AI software for large, complex projects. It uses large language models and generative AI to retrieve and organize data that allows clients to make better decisions. Some of the top uses include fraud detection, drug discovery, and supply chain management.
The U.S. military is also a major customer. The Air Force’s Rapid Sustainment Office (RSO) is using the company for aircraft maintenance and predictive analytics. Chief technology officer Ed Abbo said, “We believe our program with RSO may be the largest production AI deployment in the U.S. Department of Defense today.”
One risk for C3.ai is customer concentration. About 26% of bookings in fiscal 2025 came from federal, defense, and aerospace contracts, while its business with energy technology company Baker Hughes also makes up a large portion of its revenue. Moreover, the company is not converting its revenue into profits. While sales grew 26% year over year last quarter, C3.ai reported an adjusted net loss per share of $0.16.
However, it’s diversifying across multiple industries, a fact that could be undervalued by Wall Street. Revenue, excluding its business with Baker Hughes, grew 37% year over year last quarter. Its ability to leverage leading cloud platforms like Microsoft Azure to reach new customers globally could lead to strong growth and improving profitability over the long term.
The stock’s P/S of 8 looks more attractive than Palantir’s 111 sales multiple. C3.ai is not as profitable as Palantir, but if it continues to win more contracts across nongovernment sectors, the stock could benefit. It’s worth considering at least a small investment based on its strong revenue growth.
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BigBear.ai provides AI solutions that help organizations gather insights and make faster decisions from massive amounts of data. The stock price has soared 200% over the last year, but it’s going to need to show much stronger revenue growth to sustain more returns.
BigBear.ai’s revenue grew just 5% year over year in the most recent quarter. Its annual sales have barely increased over the last three years, rising from $145 million in 2021 to $158 million in 2024. Until the company picks up the pace, the stock’s upside will be limited.
There is clearly potential. The company is meeting a need for more advanced technology to beef up national security. It has deployed AI solutions for Dallas-Fort Worth International Airport and its counterpart in Denver. Early last year, it acquired Pangiam, a leader in vision-based AI used for facial recognition and advanced biometrics.
The main risk for the company is its dependency on government spending. This exposes it to potential budget cuts, which is something to consider given the high national debt and budget deficit. Still, the government is more likely to cut spending for a lot of other things before sacrificing technology spending for national security.
Weak financials are another negative for BigBear.ai. On top of modest revenue growth, it is reporting negative cash flow from operations and carrying $100 billion of long-term debt on its balance sheet. It has $107 million of cash equivalents to offset this, but it’s not ideal to be holding this much debt while burning cash.
At its current market cap of $1.15 billion, investors are paying a P/S of 6.1. This leaves room for upside if the company can expand beyond government contracts to the private sector. It has a growing backlog of $385 million, which reflects multiyear programs in the works, including deep commercial relationships.
C3.ai has a stronger balance sheet and a better record of growing revenue. For these reasons, it’s a safer bet for investors looking for an undervalued AI stock with significant upside potential.
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John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Microsoft and Palantir Technologies. The Motley Fool recommends C3.ai and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
Should You Buy These Beaten-Down AI Stocks? was originally published by The Motley Fool
