Lots of investors are wondering how they can tap into the growth of artificial intelligence (AI), and one company many are likely considering right now is BigBear.ai (BBAI -2.35%). The company's core service is AI data analytics, which has become important as companies look for better ways to sift through data and make decisions.
The company's AI services can be used for anything from predictive analytics for national security to forecasting patient inflows for the healthcare industry. All this gives BigBear.ai access to a wide variety of customers.
Still, BigBear.ai has a lot to prove as this market takes shape. So, is it worth betting on BigBear.ai stock right now? Here's what you need to know.
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Its stock price has soared, but it is still very volatile
BigBear.ai's share price has spiked about 200% over the past year, making it a huge winner for some investors. It's hard to pin down exactly why investors have been so ecstatic about BigBear.ai's stock. I think it has more to do with the fact that it's a small AI start-up, and investors are prone to be a bit speculative with artificial intelligence companies right now.
What's more, another AI data analytics company, Palantir, has attracted a lot of attention for its ability to win both government contracts and commercial customers. Palantir's sales rose 33% in the first quarter and closed 139 deals of at least $1 million. Some investors are likely seeing the success of Palantir, which is a strategic partner of BigBear.ai, and believe that BigBear.ai could see the same success.
But investors should know that BigBear.ai's stock is very volatile. While it's gained a lot over the past year, its stock price is down nearly 60% since mid-February, and is down by that same percentage since the company went public in late 2021.
Revenue is unimpressive, and management has been unstable
One thing you always want to see from young companies that are trying to tap into a new market is that they know how to increase sales. Of course, that's important for any company, young or old, but new companies should be increasing sales at a very rapid pace.
Unfortunately, that's not the case for BigBear.ai. The company's revenue rose just 5% to $34.8 million in Q1 of this year. The company's management issued revenue guidance in the range of between $160 million to $180 million for the full year, which would be an increase of just over 7% at the midpoint. This type of low-percentage sales growth is typically what you see from established companies that don't have many new avenues to expand their sales, not from young start-ups.
BigBear.ai has also had problems holding on to its CEOs. The company is currently on its third CEO in just four years. The current CEO, Kevin McAleenan, was acting Secretary of the U.S. Department of Homeland Security under the first Trump administration and has led BigBear.ai only since January.
It's not a good sign to see a young company cycle through so many CEOs since going public in 2021. Companies need a long-term vision and stable leadership to ensure they follow through on their goals. BigBear.ai hasn't proved it can do that yet.
Verdict: Don't buy BigBear.ai right now
You probably saw this coming, but I don't think investors should buy BigBear.ai stock right now. There's really not much to be excited about, since its sales are weak and the C-suite has been a complete mess. Those aren't positive signs for long-term investors.
It appears that investors may be too focused on the fact that this company is an AI stock at a hot time for artificial intelligence and ignoring some of BigBear.ai's struggles. I think investors would be far better served by finding an established artificial intelligence company, rather than betting on BigBear.ai right now. Its fortunes could change in the future, but I'd need to see sales rising significantly and a very stable leadership track record before considering this stock.
