The blazing success of Palantir Technologies shows that there is a legitimate market for artificial intelligence (AI) software that can help organizations utilize their data and make better decisions. BigBear.ai Holdings (BBAI +0.76%) went public in late 2021 via a merger with a special purpose acquisition company, or SPAC.
Unfortunately, it was lousy timing. Soon after, a stock market bubble fueled by zero-percent interest rates popped. It's been a tough few years for shareholders, but the stock had momentum until the recent market volatility knocked BigBear.ai back down nearly 80% from its former high.
Is this a chance to buy the dip before the stock takes off, or is the market telling investors to stay away?
BigBear.ai hasn't gained the traction that Palantir has
At the surface, BigBear.ai sounds like an exciting stock idea. The company's software performs three primary functions: observe, orient, and dominate. Essentially, BigBear.ai's software ingests data, analyzes it for trends and observations, and presents it in a way that helps operators make decisions.
BigBear.ai specializes in applications for government, supply chains, healthcare, and life sciences. The company gets much of its business from public agencies in the U.S. government. The concept is similar to Palantir, which has had immense success since releasing its AIP platform in 2023. BigBear.ai only has a $757 million market cap today, so there is plenty of room for upside if the business expands.
But so far, investors are still waiting. BigBear.ai's revenue was approximately $155 million in 2022, $155 million in 2023, and $158 million last year. Management expects sales of $160 million to $180 million for 2025, meaning growth could again be almost flat this year.
PLTR Revenue (TTM) data by YCharts
Since 2022, the widespread interest in AI software has driven sizable revenue growth for Palantir and C3.ai, another competitor. BigBear.ai's failure doesn't bode well. It has become fair to question its business execution and whether its product provides enough value relative to others.
Shareholders could face significant dilution
BigBear.ai's financials are another issue. For instance, the company ended 2024 with just $50.1 million in cash. Cash losses were $49.2 million last year, so it's likely management will need to raise more funds soon. The company has about $200 million in long-term debt. Most of that is in convertible bonds due in 2029, so while it's not an immediate issue, it increases the odds that management will raise cash by issuing stock.
BigBear.ai's cash burn and shallow pockets mean share dilution is a major risk. Management already converted some of its debt to stock to ease its near-term financial situation. Combined with stock-based compensation over the past few years, the diluted share count has more than doubled since 2022.
BBAI Average Diluted Shares Outstanding (Quarterly) data by YCharts
Remember, the more shares the company issues, the worse it is for shareholders. Share dilution diminishes a stock's upside by spreading revenue and profits more thinly across the shareholder base. It's like cutting a pizza into lots of tiny slices. You'll eat, but you won't like how much you get.
The market could be sending a message
BigBear.ai trades at a price-to-sales ratio under 4.0, making it one of the market's cheapest technology stocks. Low prices can sometimes be a buying opportunity, but not always. The company's inability to grow amid strong AI demand, its troubling balance sheet, and serious long-term dilution risk are all red flags. In other words, BigBear.ai may be a cheap stock, but there are good reasons why.
Hopefully, BigBear.ai can make strides and establish itself as an up-and-coming AI company that investors can get excited about. Until then, the stock's washout in the recent stock market sell-off is simply nature taking its course, punishing fundamentally weak stocks. Investors should probably look elsewhere for safer alternatives for their portfolios.
