Is BigBear.ai Stock a Buy Now?

Recent trends indicate that artificial intelligence (AI) stocks have faced significant declines alongside the broader stock market. Investor concerns about the short-term economic outlook have been heightened, largely due to uncertainties related to President Donald Trump's tariff and trade war strategies.

This downturn, however, has created potential opportunities for investors to acquire shares of promising companies at more favorable prices. One such company under consideration is BigBear.ai (BBAI 7.95%), which provides AI solutions for both government and commercial sectors.

As of March 12, BigBear.ai's stock had fallen approximately 27% year-to-date. This price drop might present a great opportunity to buy, but it could also be a warning sign to steer clear of the stock altogether.

BigBear.ai's Performance Overview

BigBear.ai has had a tumultuous journey. Despite the recent dips in its stock price, it saw an increase of around 33% over the past 12 months, driven by growing investor interest in AI technology.

The share price was notably boosted by the announcement of Project Stargate in January, a collaboration involving Oracle, SoftBank, and OpenAI, which is set to invest $500 billion in AI infrastructure. This was further supported by a February speech from Vice President Vance, emphasizing the U.S.'s intention to lead in AI development, which propelled BigBear.ai shares to a 52-week peak of $10.36 in February.

However, the dynamics shifted in March. Along with the broader market's decline, BigBear.ai faced its own challenges when it released its fourth-quarter earnings report on March 6. The company's forecasts indicated 2024 revenue would be between $165 million and $180 million. In reality, it reported revenues of only $158.2 million, prompting a swift drop in share value.

Positive Aspects of BigBear.ai Stock

While the company fell short of its revenue targets, its 2024 figures still marked growth from $155.2 million in 2023, largely due to increased business with the U.S. government. Looking ahead, management cautiously expects 2025 revenues to be in the range of $160 million to $180 million.

Despite the previous letdown, there are reasons to consider this optimistic outlook. Notably, BigBear.ai recently appointed a new CEO, Kevin McAleenan, who has already made strides in enhancing the company’s financial health by reducing net debt from an alarming $150 million at the end of Q4 to just $27 million in March.

Furthermore, BigBear.ai is focusing its AI initiatives on four promising areas: border security, defense, intelligence, and critical infrastructure—fields that are being prioritized for investments by the U.S. government and others, thus presenting attractive growth markets.

Concerns Regarding BigBear.ai

While there are positive aspects, potential investors should be cautious of a significant risk tied to BigBear.ai's business model: the Trump administration’s efforts to reduce government spending. Since BigBear.ai earns a majority of its revenue from federal contracts, any cuts to federal spending could severely impact its sales and sustainability.

Additionally, the company is currently unprofitable, and its losses are mounting. For instance, BigBear.ai reported a net loss of $257.1 million in 2024, primarily attributed to changes in its derivatives portfolio, which is more than four times the loss of $60.4 million it recorded in 2023.

For evaluating the investment potential, it's important to consider BigBear.ai's stock valuation, which is best represented by its price-to-sales (P/S) ratio, as the company has yet to achieve profitability.

After the recent drop in stock price, BigBear.ai's P/S ratio has become relatively more manageable, but it remains high compared to where it stood for most of the preceding year. Additionally, uncertainty surrounds the company’s ability to achieve revenue growth in 2025 amidst potential federal budget cuts.

Given these factors, prospective investors might want to reconsider purchasing shares of BigBear.ai for the time being and observe the company's performance over the next few quarters.

This article does not reflect the author's personal investments. Some companies mentioned may have positions held by their affiliates.

AI, Stocks, Investing