Just a few months ago, few investors were paying attention to BigBear.ai Holdings (BBAI 8.43%). For much of the past year, its market cap was below $250 million, and shares were down over 90% from their all-time high. In 2023, however, the company's market cap has swollen, and retail investors are taking an interest.
There's nothing wrong with that, but cautious investors may wonder if eager BigBear.ai stock buyers have gotten ahead of themselves. It may require some self-reflection to determine whether any profits made this year on BigBear.ai stock were a function of skill or just luck, and with that, whether it's time for well-timed shareholders to take the money and run.
Not all AI is the same
It's no secret the popularity of OpenAI's conversational AI program, ChatGPT, has thrust practically anything and everything with a machine learning angle into the spotlight. Seeking a purer and more direct AI play than, say, Microsoft or Alphabet, some folks may be tempted to jump into the market with BigBear.ai stock.
The newcomers' enthusiasm would be misplaced, however. If the hype is about ChatGPT in particular and conversational AI in general, then BigBear.ai doesn't fit squarely into that category. BigBear.ai describes itself as a "leader in AI-powered analytics and cyber engineering solutions" in support of "mission-critical operations." It caters more to the U.S. defense and intelligence community with cybersecurity-related machine-learning services than to collegiate term-paper writers and businesses looking to automate basic customer-service functionalities. BigBear.ai reported winning a major contract with the U.S. Air Force on Jan. 12, for example, that drove a 260% one-day gain for its stock.
So if you're specifically trying to catch the conversational AI wave that has been making headlines, don't hop on the BigBear.ai bandwagon -- which is already quite crowded in the wake of the recent ChatGTP craze -- just yet.
BigBear.ai's cash position has dwindled
Even if you fully understand what BigBear.ai does and how it's not exactly in the same category as OpenAI, there are still other red flags to consider. For example, the company has a consistent track record of quarterly earnings misses. Its net loss widened drastically from $3.1 million in Q3 2021 to $16.1 million in Q3 2022.
Perhaps the most glaring financial issue with BigBear.ai, though, is the company's declining capital position. Even as revenue has remained fairly steady, the company's cash and equivalents shrank from $68.9 million at the end of 2021 to $22.0 million as of Sept. 30, 2022. To bolster its balance sheet, BigBear.ai closed a private placement that, between the shares and the warrants that could be used to purchase shares, amounts to the potential sale of nearly 28 million shares (or a 22% addition to shares outstanding). That's one way to generate a quick $25 million in gross proceeds, but one-time share sales won't solve the company's fiscal challenges once and for all.
BigBear.ai was lucky to avert delisting
A third thing that smart investors know about BigBear.ai is the company received a noncompliance notification (i.e., a delisting threat) from the New York Stock Exchange late last year. BigBear.ai was determined to be in violation of Rule 802.01C, which requires any NYSE-listed company's shares to maintain an average closing price of at least $1 for 30 consecutive trading days.
BigBear.ai stock had, indeed, fallen below the $1 cutoff point for about five weeks before its Air Force contract saved the day. BigBear.ai stock surged as high as $6.77 per share before coming down to about $4 as of this writing. The sudden boom in everything AI-related isn't an event that's likely to repeat itself anytime soon, and if the BigBear.ai share price makes its way below $1 per share again, there may not be a bullish announcement waiting to save the day the next time around.
At that point, BigBear.ai could enact a reverse stock split, though that's no more permanent a solution than the company's recent share sale. That's something BigBear.ai's current and prospective shareholders must consider carefully.
