With shares up 78% year to date, BigBear.ai (BBAI -3.35%) is catching the attention of investors looking for a small, fast-growing company with millionaire-maker potential. But is the rally based on hype or real substance?
Let's dig deeper into the pros and cons of this artificial intelligence (AI) software stock to see if it can maintain its epic rally.
What is BigBear.ai?
BigBear.ai was formed by the roll-up of several AI and big data analytics companies held by the private equity firm AEI Industrial Partners. And despite hitting public markets relatively recently through a merger with a special purpose acquisition company (SPAC) in 2021, BigBear.ai is older than you might expect, with some of its components tracing back to 1988.
BigBear.ai's offerings include biometrics software like facial recognition and contactless identity screening, which is currently deployed at major U.S. airports like Dallas-Fort Worth International and Los Angeles International. It also offers a wide range of big data analytics software solutions designed to help clients glean actionable insights from vast amounts of information. These systems target industries ranging from shipbuilding to cybersecurity and healthcare resource planning.
How is the business performing?
Despite operating in what sounds like a cutting-edge industry, BigBear.ai's actual results are surprisingly lackluster. First-quarter revenue rose just 5% year over year to $34.8 billion. And while the company's operating losses technically narrowed from $98.1 million to $21.2 million, this decline was because of a one-time $85 million goodwill impairment charge (related to its recent acquisition of Pangiam) that occurred last year. It doesn't reflect a sustainable positive trend in the bottom line.
BigBear.ai's adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) removes nonrecurring outflows like goodwill impairment and restructuring. And it shows that the company's losses have actually increased more than fourfold, from $1.6 million to $7 million.
Despite the challenges, management seems optimistic, with CEO Kevin McAleenan claiming to see early and encouraging signs that his company's strategic focus is resonating. In 2025, Big Bear.ai aims to "strengthen its core" by focusing on opportunities like border security, trade, and shipbuilding. These efforts seem to mirror the priorities of the Trump administration, and it is unclear if the company is just chasing headlines instead of learning into actual competitive advantages.
Image source: Getty Images.
Is BigBear.ai an alternative to Palantir?
On the surface, BigBear.ai looks quite similar to its rival Palantir Technologies. Both offer big data analytics and operate AI-enabled software-as-a-service (SaaS) business models with significant exposure to the national security sector. That said, that's where most similarities end.
While BigBear.ai's sales grew by just 5% year over year, Palantir's surged by 39% as it snagged high-profile contracts with the U.S. Department of Defense and the North Atlantic Treaty Organization (NATO). Granted, with a price-to-sales (P/S) ratio of 122 (BigBear.ai trades for a P/S of 12), Palantir is overvalued despite its high growth rate. But the much lower price tag doesn't necessarily make BigBear.ai a good alternative when considering its challenges with growth and worsening cash burn.
Is BigBear.ai a millionaire-maker stock?
Markets aren't always rational. And the hype that caused BigBear.ai's stock price to rally 78% this year may continue as investors scramble to maximize their exposure to the AI and big data analytics industries.
However, long term, the company's fundamental weakness may become too glaring to ignore. Investors who want to build sustainable wealth in the stock market should look elsewhere for now.
