Palantir Rallied 100%+ in 2025 - This AI Defense Stock Could Be Next

Artificial intelligence (AI)-focused defense stock Palantir Technologies Inc. PLTR posted strong revenue growth last year, with shares soaring 135%. However, potential risks and valuation concerns are weighing on investor sentiment this year. In contrast, a smaller defense-focused stock, BigBear.ai Holdings, Inc. BBAI, appears poised for significant gains this year. Let’s see why –  

Palantir Faces Risky Outlook Despite AIP Revenue Growth 

For some time, Palantir’s Artificial Intelligence Platform (AIP) has garnered popularity among both U.S. government and commercial clients, as it lets enterprises rapidly integrate and deploy AI and large language models across complex existing data systems.  Strong demand for AIP helped Palantir’s revenues reach $1.18 billion in the third quarter of 2025, up 63% year over year and 18% sequentially, as cited by investors.palantir.com.

Palantir saw improvements not only in government contracts but also among its U.S. commercial clients. Revenues from the government segment were $486 million, up 52% year over year and 14% sequentially. Similarly, U.S. commercial revenues totaled $397 million, up 121% year over year and 29% quarter over quarter. 

The company also anticipates stronger revenues from both the U.S. government and commercial client segments, forecasting fourth-quarter 2025 sales of $1.327-$1.331 billion, and full-year 2025 revenues of $4.396-$4.400 billion. 

Palantir’s CEO Alex C. Karp also noted that the company has reached a Rule of 40 score of 114%, which exceeded the typical 40% benchmark and highlighted the scalability of its business model. However, Palantir remains heavily dependent on government contracts, and in the future, any potential defense budget could hinder its growth. 

Moreover, Palantir’s forward price-to-sales (P/S) ratio stands at 67.9 compared to 5.64 for the Internet - Software industry. This means market expectations are quite high, and if future growth decelerates, the stock could witness a sharp price drop.

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BigBear.ai Set for Growth on Ask Sage Buyout and Strong Cash 

BigBear.ai’s stock lagged behind Palantir last year, rising just 21.3%, but its outlook for this year appears much brighter. This is because BigBear.ai has strengthened its position in the defense and intelligence market by completing the Ask Sage acquisition for $250 million. The Ask Sage integration enhanced BigBear.ai’s platform with a secure generative AI workflow, enabling customers to implement AI solutions while maintaining data privacy. 

Citing BigBear.ai’s news release, its CEO, Kevin McAleenan, said that “Ask Sage is already operating at scale in mission-critical environments, and together we are bringing to market a secure, integrated AI platform that unifies data, software, and mission services in one place.” BigBear.ai has raised the full-year 2025 revenue outlook to between $125 million and $140 million, and remains optimistic about continued sales growth, citing ir.bigbear.ai. Additionally, President Trump’s proposed “big, beautiful bill,” which can increase government spending this year, potentially accelerating BigBear.ai’s revenue gains. 

BigBear.ai has already edged toward profitability, reporting a third-quarter 2025 net income of $2.5 million compared to the net loss of $15.1 million in the same period a year ago. The company’s strong cash position of $456.6 million as of Sept. 30, 2025, also gives BigBear.ai enough funds to support growth initiatives.  

Thus, BigBear.ai’s stock is well-positioned for growth this year, banking on strong cash reserves, a rise in government outlays, and the Ask Sage acquisition. Technical indicators also support BigBear.ai, with its shares trading above both the short-term 50-day moving average (DMA) and the long-term 200 DMA, signaling a bullish trend.

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BigBear.ai has a Zacks Rank #2 (Buy), while Palantir has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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