Could BigBear.ai Stock Be the Next Palantir Technologies?

Palantir Technologies (NASDAQ: PLTR) is a data analytics company that experienced significant revenue growth due to artificial intelligence (AI). It has been on a tear over the past 12 months, soaring around 270% during that time. It has established itself as one of the top AI stocks to own.

One much smaller stock that is also involved in data analytics and AI, which has also been hot of late, is BigBear.ai (NYSE: BBAI). Its gains of 60% over the past year trail Palantir -- particularly after a steep drop in February -- but it's followed a similar trajectory nonetheless. Could this stock continue to follow in Palantir's footsteps and generate massive gains for investors over the long term?

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Both companies benefited from government contracts

Government agencies use Palantir's platform for data analysis purposes and counterterrorism efforts. BigBear.ai has been securing deals with the federal government, as that has the potential to be a big growth catalyst for its business as well. On Feb. 5, it announced that it won a contract with the Department of Defense, which will help with geopolitical risk analysis. Custom AI models will assess and analyze news media in countries that may be foreign adversaries to identify trends and topics of interest.

BigBear.ai also offers facial biometrics solutions, which can be useful for government agencies. It recently secured a deal with SoftPointPay, which offers payment technology solutions for companies around the globe. BigBear.ai's biometric technologies will help SoftPointPay protect businesses and consumers against fraud and identity theft.

Investors have been bullish on these recent developments, sending shares of BigBear.ai to new 52-week highs in recent weeks.

BigBear.ai is much smaller than Palantir, but the potential is there

At just $1.4 billion in market cap, BigBear.ai is nowhere near the size of Palantir, whose valuation is north of $200 billion. But as Palantir has shown, investors are willing to pay a significant premium for a fast-growing business, especially one that may benefit from AI and data analytics. Palantir's stock is trading at more than 470 times its trailing earnings and nearly 80 times its trailing revenue.

BigBear.ai isn't anywhere near profitable -- it incurred losses totaling $170 million over the trailing 12 months -- but as the business scales, that could change. In its most recent earnings report, the company's quarterly revenue totaled $41.5 million for the period ending Sept. 30, which was up 22% year over year. Palantir, by comparison, expects its top line to grow at a rate of 31% for the current year, with its full-year revenue coming in above $3.7 billion.

Is BigBear.ai destined to follow in Palantir's footsteps?

There are many similarities between Palantir and BigBear.ai, although the latter is definitely far earlier in its growth than the former is. The good news for investors who are bullish on BigBear.ai stock is that, given the excitement in AI and data analytics, even if the business doesn't generate hundreds of millions of dollars in sales, it may not need to in order to see its valuation take off. Investors may be willing to pay a premium for the business if they see signs that it too may benefit from a surge in government business and AI-related demand.

These types of stocks, however, will only be suitable for investors with a high risk tolerance. There is a lot of potential volatility here, especially when prices get out of control, and it becomes hard to justify valuations based on revenue or earnings multiples. While it can be exciting to ride the bullishness all the way up, it can also be distressing to see the stock fall on bad news or an underwhelming earnings report.

It's far too early to tell if BigBear.ai can be the next Palantir and grow to a valuation of more than $200 billion, as its operations are still a bit too small, and it's nowhere near profitability. But even it doesn't generate the same level of revenue or profit as Palantir does, it may not be surprising to see retail investors rally around this AI stock quickly, in the hopes that it becomes the next hot buy in tech. For the majority of investors, however, the safer option is to remain on the sidelines for the time being.

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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Palantir Technologies. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.