Sell these artificially intelligent equities at once, suggest investors cautiously
In the realm of artificial intelligence (AI) and data analytics, two companies stand out: BigBear.ai and Palantir Technologies. While both companies are making significant strides in their respective fields, their financial performances and market valuations paint a contrasting picture.
Last quarter, BigBear.ai posted an operating loss of $21 million, a setback that might be concerning for investors. However, the company's revenue for the same period showed a modest 5% year-over-year increase, reaching $35 million. In comparison, Palantir Technologies (PLTR) has been on a growth spree, with its revenue surging by 39% year over year, resulting in quarterly revenues of over $1 billion.
BigBear.ai's P/S ratio stands at 13, a relatively low figure compared to Palantir's astronomical P/S ratio of 123. This high ratio indicates that Palantir's stock price is significantly higher than its sales, a factor that has led some analysts to deem it overvalued.
Palantir's market cap currently stands at a staggering $363 billion, making it the 24th-largest company in the world. In contrast, BigBear.ai's market cap is a mere $2.4 billion. This vast difference reflects the market's confidence in Palantir's growth potential and profitability.
Despite its rapid growth and profitability, Palantir's stock has been a subject of debate. The company's stock price exceeds long-term fair value estimates held by analysts, a situation that has led to its perceived overvaluation. Factors contributing to this include a high stock price relative to intrinsic value, market correction and mean reversion pressure, and investor sentiment swings.
Meanwhile, BigBear.ai seems to be losing out to the much larger Palantir in the market. Its recent contract with the Department of Defense worth $13.4 million to modernize the Joint Chiefs of Staff is a step in the right direction, but it may not significantly impact its business in the near future.
BigBear.ai's shares outstanding have increased by 100% since going public through a special purpose acquisition company (SPAC). However, this rapid expansion might not translate into immediate growth, given the company's slower pace compared to Palantir.
On the other hand, Palantir has been closing deals worth at least $1 million in the first quarter, demonstrating its continued success in the market. The company's profitability is also evident, with a 20% operating income margin.
Despite Palantir's blistering growth rate, if it were to maintain this pace for the next five years, its stock would still trade at a highly expensive earnings ratio. If Palantir grows its revenue at the recent 39% rate for the next five years, it would generate around $5 billion in earnings, resulting in a price-to-earnings (P/E) ratio of 72.6.
In conclusion, while both BigBear.ai and Palantir are making significant strides in the AI and data analytics sector, their financial performances and market valuations present a stark contrast. BigBear.ai's current performance and financial standing might make it a poor investment choice, while Palantir's perceived overvaluation and high growth premium could make it a risky investment amid volatile market conditions. Investors are advised to carefully consider these factors before making investment decisions.
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