AI fever has revived the technology sector over the past year with offerings that were hard to imagine a few years ago. After the launch of ChatGPT, a flurry of investments from tech giants added to the buzz and AI-themed opportunities added $2.4 trillion to U.S. tech giants’ market capitalizations in a single year.
Less prominent firms went on a tear too. Take Palantir Technologies Inc. (NYSE:PLTR) as an example. The company started trading with a market cap of $16.5 billion in 2020, yet has grown to more than $50 billion in the intervening period.
Hot on its heels are other notable AI firms but do they have the fundamentals to rival Palantir’s success story? C3.ai, Inc. (NYSE:AI) and BigBear.ai Holdings, Inc. (NYSE:BBAI) are two top contenders, but which is best?
C3.ai, Inc.: Diversifying Customer Base
Founded in 2009, enterprise AI company C3.ai started operating in the nascent cloud computing, IoT, and big data market. The company eventually developed to include over 40 AI production applications across several industries.
With success in the energy market in 2013-2015, the growth of its product offerings suite has also led to expansion into other markets. As a testament to that, in the 2019-2023 period, C3.ai booked over $1.2 billion in additional contracts and recognized $951.1 million in revenue.
The company’s energy operations are bolstered by its relationship with oilfield services company Baker Hughes Company (NASDAQ:BKR). The partnership was initiated in 2019 and extended for six years until 2025.
The relationship has resulted in more than $650 million in contracts for C3.ai and, as of Q3 2023, and generated more than $350 million in revenue.
However, the company is diversifying to tap into a broader customer base. In Q3 2024 (which ended January 31), C3.ai closed 50 agreements, increasing the magnitude by 85% year over year.
It further diversified its bookings distribution across industries such as state and local government (29%), federal, defense, and aerospace (25%), manufacturing (16%), and agriculture (11%). Interestingly, energy and utilities accounted for only 2% of its booking distribution in Q3.
For the same quarter, C3.ai’s total revenue was $78.4 million, an 18% increase from the year-ago value. That said, as of Q3 2024, the enterprise was not profitable. It recorded a non-GAAP loss of $25.8 million from operations, worsening by 72% from the year-ago value.
As of the end of Q3, C3.ai had $723.3 million in cash, cash equivalents, and marketable securities, which the company deems enough to support working capital and capital expenditure requirements for at least the following 12 months.
It generated net cash of just $6.0 million during the nine months that ended January 31 through financing activities. This was due to proceeds from the exercise of stock options for Class A common stock and from the issuance of Class A common stock as part of an ESPP (employee stock purchase program), which necessarily dilutes existing shareholders.
The company changed from a primarily subscription-based pricing model to a consumption-based one to reduce the cost for new customers and increase customer engagement. Additionally, it is investing in generative AI, launching the C3 Generative AI Suite in Q1 2024.
Despite exhibiting operative prospects, the company provided a lackluster outlook. For Q4 2024, C3.ai expects revenue in the $82.0-86.0 million range while still projecting non-GAAP loss from operations of $43.5-51.5 million.
For fiscal 2024, revenue is expected to be in the range of $306.0-310.0 million. The company is still anticipated to post a non-GAAP loss of $115.0-123.0 million from operations.
BigBear.ai Post-acquisition Prospects
Decision-intelligence solutions provider BigBear.ai has customers in the government and defense, manufacturing, and healthcare and life sciences industries. Its open-architecture solutions and domain-driven models are prime differentiators.
Last year, the company implemented a strategy to target end markets with demand for AI/ML applications, cybersecurity, and logistics but the company faced hurdles related to one of its key customers.
In 2021, BigBear.ai entered into an agreement with satellite-launching company Virgin Orbit regarding the usage of its Decision Dominance platform. In 2023, Virgin Orbit filed for Chapter 11 bankruptcy protection, which resulted in serious pressure on BigBear.ai’s gross margin.
The company’s revenue growth slowed from 6.5% between 2021 and 2022 to 0.1% between 2022 and 2023 while revenue for 2023 stood at $155.2 million.
Gross margin fell by 6% from the prior year to $40.6 million but, due to a decline in costs, operating loss reduced from $110.5 million in 2022 to $39.0 million in 2023.
On the liquidity front, the company ended 2023 with $32.6 million in cash, cash equivalents, and restricted cash, significantly more than the $12.6 million in 2022 but still lower than the $169.9 million in 2021.
Recently, BigBear.ai acquired Vision AI firm Pangiam Intermediate Holdings, LLC, bolstering its artificial intelligence capability. This acquisition is set to grow BigBear.ai’s inorganic revenue.
With the acquisition factored in, the company’s fiscal 2024 revenue is expected to be $195-215 million.
C3.ai or BigBear.ai: Which Is Best?
According to analysts, C3.ai has 10% upside to fair value of $28.98 per share while BigBear.ai has close to 100% upside to fair value of $4 per share, making it the more attractive stock to buy.
C3.ai’s shares are trading at 10.94x forward sales, which is quite high by industry standards. BBAI, on the other hand, has a lower-than-industry forward price-to-sales ratio of 2.39x.
While BigBear sales are forecast to rise this year, analysts do not expect it to be profitable and the share price is typically very volatile.
It’s clear that Wall Street has not fully embraced C3.ai. 14 analysts have downgraded their revisions en masse for the upcoming quarter and they do not expect the company to be profitable either. While it is cash rich and more established, it trades at a high valuation multiple.
It should be noted that C3.ai is the preferred choice for more conservative investors who want a more tenured enterprise while BigBear offers more risk but more reward potential too.
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