BigBear.ai and C3.ai operate in the hot AI field, but neither are profitable companies.
C3.ai relied on a partner network to deliver a 29% year-over-year revenue increase in its fiscal second quarter.
BigBear.ai's year-over-year sales growth has been inconsistent, but it now has a new CEO.
Artificial intelligence (AI) is a hot sector to invest in, and the fervor over AI is understandable. The tech has been hailed as "the next major wave of computing" by Microsoft CEO Satya Nadella.
A number of businesses are using AI to transform industries. Two such companies are BigBear.ai and C3.ai. The former employs AI to assist the defense and national security sectors. The latter delivers turnkey and custom AI software to organizations across several industries.
Deciding which is the better AI investment is not a clear-cut choice. Let's dig into BigBear.ai and C3.ai to help you evaluate both.
C3.ai has prospered amid the rapid rise in demand for AI. The firm's ability to quickly deliver turnkey AI applications is a strength, and adding to this is a robust partner network helping it drive business growth.
For example, in September, C3.ai formed a partnership with Microsoft where the latter's sales team will sell C3.ai's solutions. Also, its partnership with Alphabet-owned Google Cloud contributed to the partner network closing 62% of all deals in C3.ai's fiscal second quarter, ended Oct. 31, 2024.
Its partners helped C3.ai reach fiscal Q2 revenue of $94.3 million, a strong 29% year-over-year increase. Of this, 86% represented income from subscriptions. This is a strength because subscriptions provide C3.ai with recurring revenue.
The company's Q2 sales growth led C3.ai to forecast revenue between $378 to $398 million for its 2025 fiscal year. This is good growth over the prior year's $310.6 million.
Despite its strengths, C3.ai is not profitable. It exited fiscal Q2 with a net loss of $66 million. However, this was a drop from the prior year's net loss of $70 million, which shows C3.ai is trying to manage costs.
BigBear.ai provides AI software for defense and national security. For example, its AI scans images of travelers at the Denver International Airport to automatically verify their identities. Its customers include the U.S. Air Force and Army, and it added the Navy on Jan. 30.
In the third quarter, BigBear.ai experienced strong sales growth of 22% year over year to $41.5 million. Though that kind of increase is excellent, part of that came from last year's acquisition of facial recognition firm Pangiam rather than organic growth.
In fact, looking at the company's first three quarters of 2024, its $114.4 million in sales is down from 2023's $114.6 million. This is a disappointing outcome for an AI company, but BigBear.ai estimates it will wrap up 2024 with revenue in the range of $165 million to $180 million, which is an increase from 2023's $155.2 million.
In addition, BigBear.ai's Q3 gross margin was 26%, which is terrible for a software company. Contrast this to C3.ai's much healthier fiscal Q2 gross margin of 61%.
With such poor margins, it's no wonder BigBear.ai is not profitable. It posted a net loss of $12.2 million in Q3. Many tech companies sacrifice profits to expand their businesses as fast as possible, but BigBear.ai's sales growth hasn't been consistent. This makes its lack of profitability particularly concerning.
Perhaps that will change under new CEO Kevin McAleenan, who took over the top spot on Jan. 15. He was acting secretary of homeland security during President Trump's first term. With President Trump's return, Mr. McAleenan's timely appointment could help BigBear.ai expand its government business.
After comparing BigBear.ai and C3.ai, at this point, the latter appears to be the better artificial intelligence stock, given its stronger financials and consistent sales growth. But there's more to uncover.
C3.ai's partner network is key to its success, and one of its biggest partnerships is with energy company Baker Hughes, which sells C3.ai solutions to the oil and gas industry. The partnership expires in April of this year.
If the partnership isn't renewed, the loss could be devastating to C3.ai. Some estimates indicate Baker Hughes is responsible for a third of C3.ai's sales. This wrinkle makes it more challenging to decide between C3.ai and BigBear.ai.
Right now, the ideal course of action is to wait on investing in either company. C3.ai may still be the better investment choice over the long term, but it's best to see if the Baker Hughes partnership renews first.
As for BigBear.ai, if its Q4 sales result in double-digit year-over-year growth, like it did in Q3, then that's an encouraging sign. Since it has a new CEO, BigBear.ai's performance should be monitored for a few quarters to see if Mr. McAleenan can deliver consistent sales growth and strengthen company financials before considering an investment.
Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.