BigBear.ai (BBAI 2.58%) is a popular artificial intelligence (AI) stock pick due to its pure-play status in the space. There aren't many investments that are solely focused on AI, which attracts investors to these ideas.
BigBear.ai is also a small company, with a market cap of around $1.9 billion. It wouldn't take much growth to turn this into a much larger business, but is it enough to make you a millionaire from a modest investment?
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BigBear.ai has significant customer concentration
For BigBear.ai to make you a millionaire, let's say it needs to deliver 100 times the returns. This would transform $10,000 into $1 million if it achieves that growth level.
BigBear.ai focuses on providing AI solutions, primarily to government entities. Although it doesn't name its clients, BigBear.ai generates a significant portion of its revenue from a handful of clients, likely different government departments. In 2024, 52% of revenue came from just four customers. That's inherently an issue, as one of those customers could cut its spending with BigBear.ai and cause significant turmoil within the business.
However, many companies thrived with only having a few clients as customers, so this is just a risk, not a disqualifier.
Furthermore, BigBear.ai seems to be doing quite well with some of its clients. Last year, it was awarded a five-year, $165 million contract to develop the U.S. Army's Global Force Information Management-Objective Environment. This is a significant development, as it generates an average of $33 million in revenue per year for BigBear.ai. Considering that its total revenue over the past 12 months was only $160 million, this contract is a huge boost for BigBear.ai.
BBAI Revenue (TTM) data by YCharts
However, it needs to continue capturing large contracts in order to succeed. With President Donald Trump's crackdown on some levels of government spending, this could prove difficult in the near future. As a result, BigBear.ai faces an uphill battle. Still, if it can capture a few contracts here and there, it has massive upside potential, but it needs to show some life in the near future.
BigBear.ai's growth needs to accelerate to be on most investors' radar screens
In Q1, BigBear.ai's revenue only rose 5% year over year to $34.8 million. Considering the significance of AI, this seems like an incredibly slow growth rate. However, its backlog grew 30% year over year to $385 million, indicating strength in capturing new contracts. BigBear.ai needs to start recognizing some revenue from these contracts, as 5% growth won't suffice, especially when other competitors are delivering significantly higher levels.
Another highly recognized AI company that has significant exposure to the U.S. government is Palantir Technologies. Palantir saw 45% revenue growth to $373 million in Q1 for its U.S. government-related business, so it's clear that Palantir is both larger and faster-growing than BigBear.ai in the government realm.
If BigBear.ai were delivering the same growth rate as Palantir with government clients, I'd be far more excited about the stock. But because it's only growing by 5%, I'm extremely skeptical.
One saving grace of BigBear.ai's stock is its relatively cheap price.
BBAI PS Ratio data by YCharts
At around 11 times sales, BigBear.ai trades at the low end of the typical 10 to 20 times sales range that software companies are usually valued at. However, most software companies aren't growing at 5% year over year, which is why BigBear.ai's valuation appears to be deceptively low.
With the current business state, I don't think BigBear.ai is a millionaire-maker stock. If it starts landing big contracts and growing at a rapid pace, I may change my stance. But as of right now, there are far too many better AI stock picks out there than BigBear.ai.
