Forget BigBear.ai: This "Picks and Shovels" Data Streaming Stock Looks Built for Long-Term AI Upside

BigBear.ai (NYSE: BBAI), a developer of artificial intelligence (AI) modules for edge networks, disappointed many investors after going public through a merger with a special purpose acquisition company (SPAC) four years ago. Its stock started trading at $9.84 per share, but now trades below $6. Its stock sank as it fell short of its ambitious forecasts.

Before going public, BigBear.ai claimed its revenue would surge from $182 million in 2021 to $550 million in 2024. In reality, its revenue only rose from $146 million in 2021 to $158 million in 2024, as its top customer went bankrupt and it faced intense macro and competitive headwinds.

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BigBear.ai's modules can be plugged into an organization's edge networks to crunch data and predict trends, but plenty of other companies offer similar AI products. It's also heavily dependent on rigid government contracts rather than scalable commercial deals, and it's relying more on acquisitions -- including its 2024 takeover of the AI vision firm Pangiam and its planned purchase of the generative AI company Ask Sage -- to drive its top-line growth.

BigBear.ai's appointment of Pangiam's CEO, Kevin McAleenan, an acting secretary of the Department of Homeland Security (DHS) during the first Trump Administration, as its new CEO a year ago sparked some hope for fresh government contracts. However, none of its recent deals will significantly boost its near-term revenues. Analysts expect its revenue to rise 23% in 2026 as it takes over Ask Sage, but they anticipate another 2% decline in 2027 after it integrates that acquisition. It's also expected to stay unprofitable for the foreseeable future.

With a market cap of $2.5 billion, BigBear.ai still looks expensive at 15 times this year's sales. Instead of paying a premium for this struggling AI company, investors should focus on more promising blue chip stocks like IBM (NYSE: IBM), an oft-overlooked "picks and shovels" play which still has plenty of upside potential as the global AI market expands.

How is IBM becoming an AI play?

For decades, IBM was one of the world's top tech companies. But from 2011 to 2020, its annual revenue plummeted from $106.9 billion to $55.2 billion. Its core software, hardware, and IT services segments struggled to keep pace with their cloud-based competitors, and it got stuck in a destructive cycle of cutting costs and buying back billions of dollars in shares to prop up its earnings per share (EPS). A series of desperate divestments -- including the sales of its PC, enterprise x86 server, printing, and chipmaking divisions -- exacerbated that pressure.

However, IBM's revenue and EPS finally grew at a CAGR of 3% and 1%, respectively, from 2020 to 2024. Big Blue's business finally stabilized after Arvind Krishna, its former cloud chief, took the helm as its CEO in 2020. Under Krishna, IBM spun off its slower-growing managed infrastructure services segment as Kyndryl (NYSE: KD) and used its open-source software subsidiary, Red Hat, to launch additional hybrid cloud and AI services.

Instead of going toe-to-toe with public cloud giants like Amazon (NASDAQ: AMZN) and Microsoft (NASDAQ: MSFT), IBM launched more AI services to analyze data flowing through the "hybrid cloud" space between public cloud platforms and on-premises private clouds.

That strategy was appealing for large organizations that weren't ready to migrate all of their private data to the public cloud. Furthermore, Red Hat's open-source foundations make its hybrid cloud and AI services compatible with a wide range of public and private clouds. That flexibility was essential for companies with multi-cloud setups.

Over the past five years, IBM acquired more companies to expand its hybrid cloud and AI ecosystem. Last December, it agreed to buy Confluent (NASDAQ: CFLT) -- which analyzes streaming data in real time with its "Kafka-as-a-service" platform -- for $11 billion. That would mark its biggest acquisition since its $34 billion takeover of Red Hat in 2019.

From 2024 to 2027, analysts expect IBM's revenue and EPS to grow at a CAGR of 5% and 19%, respectively, as its hybrid cloud and AI businesses expand. Its stock isn't a bargain at 30 times next year's earnings, but it should have more upside potential than the struggling SPAC-backed AI underdogs like BigBear.ai.

Leo Sun has positions in Amazon. The Motley Fool has positions in and recommends Amazon, International Business Machines, Kyndryl, and Microsoft. The Motley Fool recommends Confluent and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.