BBAI vs. LDOS: Which Defense Tech Stock Has Better Upside Potential?

Artificial intelligence is becoming increasingly important in defense, intelligence and homeland security, driving demand for companies that can deliver mission-critical software and advanced technologies. BigBear.ai Holdings, Inc. BBAI and Leidos Holdings LDOS are two companies benefiting from thi…

Artificial intelligence is becoming increasingly important in defense, intelligence and homeland security, driving demand for companies that can deliver mission-critical software and advanced technologies. BigBear.ai Holdings, Inc. BBAI and Leidos Holdings LDOS are two companies benefiting from this trend, though they operate at very different scales.

BigBear.ai is a specialized defense AI company focused on national security applications, while Leidos is a diversified government technology leader with expanding AI capabilities across defense, cyber and digital modernization. Let's dive deep and closely compare the fundamentals of the two stocks to determine which one is a better investment now.

The Case for BigBear.ai Stock

BigBear.ai continues to evolve into a pure-play defense and security AI company focused on high-value government missions. Although first-quarter 2026 revenues declined 1% year over year to $34.4 million, the quality of revenue improved substantially. Gross margin expanded 1,278 basis points to 34% as higher-margin generative AI offerings from the Ask Sage acquisition became a larger contributor to sales. The company reaffirmed its 2026 revenue guidance of $135-$165 million, signaling confidence despite an uncertain federal spending environment.

Management is increasingly executing on its strategy of becoming a mission-ready AI provider. During the quarter, BigBear.ai secured approximately $75 million of notable contract wins, including a classified $53 million intelligence award, new Ask Sage deployments with NASA, the Army Intelligence and Security Command and the Naval Research Laboratory, as well as airport security contracts at Chicago O'Hare and Dallas-Fort Worth. These wins helped backlog increase 14% sequentially to $281.9 million while supporting a gradual shift from lower-margin services toward recurring software revenue.

The balance sheet has also strengthened considerably. Following the conversion of most of its convertible notes, BigBear.ai ended the quarter with $431.5 million in cash and investments while significantly lowering future interest expense. This provides financial flexibility to invest in product development and pursue strategic growth initiatives.

Nevertheless, the investment case still carries meaningful risk. Revenue growth remains inconsistent, adjusted EBITDA remains negative and profitability is likely to take time. The company also remains highly dependent on the timing of government contract awards and the successful commercialization of Ask Sage. While BigBear.ai possesses considerable long-term AI potential, investors still need evidence that improving margins can translate into sustainable earnings growth.

The Case for LDOS Stock

Leidos offers investors a much more diversified and financially proven defense technology platform. First-quarter 2026 revenues increased 4% year over year to $4.4 billion, while non-GAAP earnings per share (EPS) rose 5% to $3.13. Strong execution prompted management to raise its full-year revenues, earnings and operating cash flow guidance, reflecting confidence across its defense, intelligence, cyber and digital modernization businesses.

Artificial intelligence is becoming an increasingly important growth driver for Leidos. Under its NorthStar 2030 strategy, management continues investing across defense technology, mission software, cyber, managed health and digital infrastructure. During the quarter, Leidos secured an $869 million MACRO II contract for AI-enabled battlefield decision systems, more than $461 million of DISA cyber modernization awards, a $335 million NSA modernization contract and a $284 million SEC infrastructure modernization contract. These wins reinforce the company's leadership across mission-critical government technology programs.

Leidos is also strengthening its long-term growth profile through acquisitions and product expansion. The recently completed Entrust acquisition broadens its infrastructure capabilities, while management highlighted more than $9 billion of defense technology awards secured during the past 15 months, with another robust pipeline ahead. Combined with consistent profitability and healthy free cash flow generation, these initiatives position Leidos for steady long-term expansion.

The primary limitation is that Leidos' mature business model naturally delivers slower growth than emerging AI companies. Integration of acquisitions and dependence on government budget priorities also remain ongoing risks. However, these risks are considerably lower than those faced by smaller, less profitable AI companies.

Relative Market Performance

Neither stock has rewarded investors this year despite growing defense AI spending. BigBear.ai shares have lost 33.3% year to date, while Leidos has plunged 44.4%. Both have underperformed the Zacks Computers - IT Services industry's 26.8% decline, as well as the broader Zacks Computer and Technology sector's 12.8% gain and the S&P 500's 7.3% advance.

BBAI vs LDOS Price Performance (YTD)

Among peers, Palantir Technologies PLTR stock has lost 34.9% YTD. Meanwhile, CACI International CACI stock has delivered comparatively stronger performance, diping 14.3% YTD, supported by resilient defense spending and consistent execution across intelligence and national security contracts. Relative to these peers, BigBear.ai remains a higher-risk turnaround story, while Leidos' recent weakness appears disconnected from its underlying operational strength.

Valuation Favors Leidos

The two companies also trade at vastly different valuations. BigBear.ai currently trades at 11.19X forward 12-month sales, roughly in line with the Zacks Computers - IT Services industry average of 11.3X. Investors continue assigning a premium multiple based on expectations for future AI-driven growth despite the company's ongoing losses.

Leidos trades at only 0.69X forward sales despite generating consistent profits, strong cash flows and industry-leading government relationships. The valuation reflects its mature profile rather than deteriorating business fundamentals.

BBAI vs LDOS Valuation (P/S F12M)

Among peers, Palantir continues to command one of the richest valuation multiples at 29.87X in the software sector because of its rapid AI-driven expansion and premium growth outlook. CACI trades at 0.96X amid its stable defense business and predictable profitability. Compared with both peers, Leidos appears attractively valued, whereas BigBear.ai already reflects significant optimism regarding future execution.

Earnings Outlook Continues to Improve

Analysts have become more constructive on both companies, although the quality of revisions differs. Over the past 60 days, the Zacks Consensus Estimate for BigBear.ai's 2026 loss has improved to 25 cents per share from a loss of 35 cents. Analysts expect revenues to grow 13% this year, followed by another 13.7% increase in 2027. Losses are expected to narrow further to 19 cents per share in 2027, reflecting continued benefits from higher-margin AI software revenue.

BBAI Estimate

Leidos has seen modest but positive estimate revisions. Over the past 30 days, the Zacks Consensus Estimate for 2026 EPS increased to $12.26 from $12.25. Earnings are expected to grow 2.3% this year and another 5.4% in 2027, while revenues are projected to increase 4.7% in 2026 and 4.8% in 2027. Although Leidos is unlikely to deliver explosive growth, its earnings trajectory remains significantly more predictable.

LDOS Estimate

Which Stock Has Better Upside Potential?

BigBear.ai offers investors exposure to one of the fastest-growing areas of defense spending. The company's expanding generative AI portfolio, improving backlog, strengthening balance sheet and transition toward higher-margin software create an attractive long-term growth story. However, persistent operating losses, uneven revenue growth and execution risks make the investment speculative at current levels. BBAI presently carries a Zacks Rank #4 (Sell).

Leidos presents a more balanced investment opportunity. The company combines consistent earnings growth, expanding AI capabilities, rising guidance, strong contract momentum and one of the most attractive valuations among major government technology contractors. While its growth rate is more moderate than BigBear.ai's, its diversified business model, superior profitability and stronger earnings visibility make it the more compelling investment today.

Overall, Leidos appears to offer better upside potential. Its combination of improving fundamentals, discounted valuation, expanding AI-driven defense opportunities and substantially lower execution risk outweighs BigBear.ai's higher-growth but more uncertain outlook. The company currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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