Over the previous 12 months, BigBear.ai’s share worth tripled.
Regardless of working within the white-hot AI sector, the corporate’s income is rising slowly.
With a brand new CEO, a wholesome backlog, and up to date protection wins, the corporate has potential. But it surely nonetheless must show it will possibly execute.
BigBear.ai Holdings(NYSE: BBAI) has been outperforming the market recently as a part of a broader rally in synthetic intelligence (AI) shares. Shares are up almost 70% this yr, and surged 420% over the previous 12 months.
After its stellar run, does BigBear.ai belong in your portfolio? Here is some meals for thought.
Picture supply: Getty Photographs
BigBear.ai supplies AI-driven software program that helps organizations analyze advanced information and make essential selections. A large chunk of the corporate’s income comes from authorities contracts, though its prospects additionally embody producers, healthcare suppliers, and life sciences firms.
The inventory has skyrocketed 140% over the previous three months, regardless of underwhelming first-quarter outcomes and only a smattering of optimistic information.
Working in its favor, although, is the truth that the corporate sits on the intersection of two sizzling zones available in the market: AI and protection expertise. With that in thoughts, it might be attracting buyers who’re searching for the following Palantir Applied sciences, an AI powerhouse that is up 410% over the previous 12 months. Both manner, it is probably that BigBear.ai is benefiting from sturdy sector momentum, and there is nothing fallacious with that.
It is also value noting that 27% of the float is managed by short-sellers, which may put it on the radar of meme inventory buyers hoping for a brief squeeze.
A brief squeeze happens when the inventory worth goes up, forcing short-sellers to cowl their positions by buying shares, which juices the share worth additional.
No matter what’s actually pushing the inventory greater, the current rally appears a bit disconnected from the enterprise’ fundamentals.
Within the first quarter of 2025, BigBear.ai grew its income by 5% yr over yr, to $34.8 million. That may appear respectable on the floor, however take into account that the worldwide AI market is projected to have a compound annual development fee (CAGR) of 36% for the following 5 years, based on Grand View Analysis. In 2024, BigBear.ai grew its annual income by simply 2%, and missed the low finish of its income steerage by almost $7 million.
BigBear.ai is not worthwhile, however there have been some encouraging indicators within the first quarter. The corporate reduce its internet loss in half in comparison with the year-ago interval, bettering the per-share loss from $0.68 to $0.25. It additionally decreased its long-term debt by $58 million.
Nonetheless, there are some pink flags. Promoting, common, and administrative (SG&A) bills — non-production prices for issues like gross sales commissions, promoting, lease, and workplace provides — ballooned 34% within the first quarter, outpacing income development by a large margin. If the corporate was investing closely in SG&A to gasoline its development, you’ll count on to see stronger top-line acceleration.
When evaluating an organization’s working efficiency, it may be useful to have a look at adjusted EBITDA. This metric begins with earnings earlier than curiosity, taxes, depreciation, and amortization (EBITDA) and strips out one-time or noncash gadgets similar to stock-based compensation, restructuring expenses, and modifications within the worth of investor contracts.
Within the first quarter of 2025, BigBear.ai reported an adjusted EBITDA lack of almost $7 million, in comparison with a $1.6 million loss within the year-ago interval. Administration attributed the big spike to elevated analysis and improvement spending and slower authorities funding that led to underutilized sources.
If I may decide one key purpose to contemplate beginning a place in BigBear.ai, it will be the CEO, Kevin McAleenan, who was appointed in January. McAleenan was performing secretary of the Division of Homeland Safety in President Donald Trump’s first administration. He additionally co-founded AI imaginative and prescient supplier Pangiam, which BigBear.ai acquired in 2024.
He plans to concentrate on a number of promising segments: border safety, protection, intelligence, and essential infrastructure. Given the present geopolitical tensions and the Trump administration’s emphasis on border safety, the corporate might be in a great place to take the following step in its development beneath McAleenan’s management.
It is also vital to notice that BigBear.ai ended the primary quarter with a $385 million backlog and already secured a significant contract win this yr. In March, the Division of Protection awarded it a $13.2 million sole-source contract to ship and preserve its Joint Employees J-35 ORION Determination Assist Platform.
As a result of the corporate is not worthwhile, we will use the price-to-sales ratio (P/S) to get a way of its inventory valuation. We’ll examine it to Palantir and C3.ai, each of which have a presence within the authorities tech sector.
Primarily based on the P/S metric, BigBear.ai and C3.ai are buying and selling at comparable valuations (though the previous is barely greater), and BigBear is buying and selling at a deep, deep low cost to Palantir.
Palantir’s valuation has sparked loads of debate, however buyers have proven they’re prepared to pay a premium for the corporate’s explosive development and powerful momentum within the protection and industrial markets. Within the first quarter, it reported 39% year-over-year income development whereas closing 139 offers of no less than $1 million.
For its fiscal 2025 (ended April 30), C3.ai reported 25% year-over-year income development.
Due to its lackluster development and chronic losses, BigBear.ai is a speculative guess, in my view. Till it proves it will possibly speed up development and stabilize its fundamentals, I might keep on the sidelines.
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Josh Cable has positions in Palantir Applied sciences. The Motley Idiot has positions in and recommends Palantir Applied sciences. The Motley Idiot recommends C3.ai. The Motley Idiot has a disclosure coverage.
