Many AI stocks have risen in value during the past year, and their lofty valuations suggest little upside. High prices mean investors are paying for future growth, even if they deliver good returns. Many AI stocks are dangerous bets since their prices could plummet if they don't expand.
However, Wall Street's price forecasts suggest that BigBear.ai (NYSE: BBAI) and Baidu (NASDAQ: BIDU) have significant upside potential. These AI stocks seem promising—are they worth investing in today? Let's investigate.
BigBear.ai has few users. Multiple analysts have set price targets of $3 and higher for BigBear.ai, which Wall Street expects to rise more than 50% in the next year.
BigBear.ai helps firms make hard business decisions in a competitive AI field. It claims users employ "predictive analytics capabilities in highly complex, distributed, mission-based operating environments." This is unclear, and many AI businesses promise to increase decision-making, making it hard to compare the business to others offering similar products and services.
BigBear's revenue relies heavily on four undisclosed customers, which may be concerning. These customers made for 58% of BigBear's revenue in 2023, with one contributing 21%. That's a lot of exposure to a few clients, therefore the company's top-line growth depends on their strength and security.
Last year's $155.2 million sales was steady for BigBear.ai. With a gross margin of $40.6 million, the company's $71.1 million selling, general, and administrative expenses easily wiped out that margin, sending it into the red. BigBear has poor financials and slow growth. In the AI business, this stock is unimpressive. The stock is fallen 20% in the past year, and I wouldn't be surprised if price targets are lowered because it's not a good investment.
Baidu carries some dangers. Baidu's share price fell 28% in the past year. But with a consensus analyst price objective of over $177, the stock might rise more than 60%.
Baidu is a Chinese search engine powerhouse that also offers AI chips, deep learning framework, and other AI services. Baidu calls itself "one of the very few companies in the world that offers a full AI stack." Baidu's Ernie is a chatbot you may not have heard of, unlike ChatGPT, Bard, and Gemini. The chatbot launched last year can answer inquiries and provide detailed analysis and responses.
Baidu reported 9% sales growth last year, reaching $19 billion. Over the year, operating income rose 37% to $3.1 billion. The stock is trading at 10 times analyst-estimated future profits, making it potentially inexpensive.
Baidu appears to be a better AI than BigBear.ai. With a dominant position in China and more AI-related products and services, Baidu may be an underappreciated company. However, fears remain that the Chinese government may have too much of an impact on the business and its long-term growth potential.
Ernie has even been linked to military research, though the company denies it. Baidu's low valuation makes it an appealing AI investment if you're willing to take some risk, especially if you want to diversify outside the U.S.
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