BigBear.ai (BBAI -0.09%) stock was in roaring form on the stock market for much of the past year, rising by a whopping 337% as of this writing, despite even wilder swings in its share price. The past month, however, has been one that the company's investors may wish they could forget -- the stock lost 31% of its value during the period.
Its second-quarter results, which it released on Aug. 11, made matters worse. BigBear.ai didn't just miss Wall Street's expectations -- it also trimmed its 2025 guidance, and the stock was hammered. Investors, however, should remember that BigBear.ai is operating in the artificial intelligence (AI) software market, which is on course to grow rapidly in the coming years.
So, should savvy investors treat this stock's recent drop as a buying opportunity in anticipation of healthy gains over the next three years?
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BigBear.ai's end market is growing at an incredible pace
BigBear.ai's AI-powered solutions enable its clients to analyze their data so that they can improve their decision-making ability, which can ultimately lead to improved operational efficiency and productivity. The company's AI solutions are already being deployed in such varied areas as cybersecurity, digital identity management, computer vision, and predictive intelligence.
BigBear.ai points out that these AI tools are being used in industries such as border security, defense, travel and trade, supply chain, healthcare, and academics. The good part is that demand for the type of AI software platform that BigBear.ai provides is growing at a tremendous pace. Market research firm IDC expects this market to generate $153 billion in annual revenue in 2028, up from just $28 billion in 2023.
The bad news, however, is that BigBear.ai isn't doing enough to make the most of this lucrative opportunity. Its revenue barely increased last year, and its updated 2025 guidance for revenue in the $125 million to $140 million range suggests that its top line will drop by between 12% and 21%. Meanwhile, competitor Palantir Technologies (PLTR 1.60%) has been making significant strides in the AI software platform market.
In the first half of 2025, Palantir's revenue jumped by 44%. Its backlog grew at a faster pace than BigBear.ai's. Palantir also ended the second quarter with a 65% spike in its remaining deal value (the total value of its unfulfilled contracts) to $7.1 billion. Meanwhile, BigBear.ai's $380 million backlog at the end of Q2 represented a 43% increase from the year-ago period.
In short, Palantir is growing at a much faster pace than BigBear.ai, even though it is the bigger company. A major reason why that's the case is that Palantir is successfully targeting commercial customers. The company started offering its Artificial Intelligence Platform (AIP) to commercial customers in April 2023, and it has been reaping the rewards ever since.
Palantir's commercial revenue increased by an impressive 47% year over year in the second quarter, driven by an almost identical increase in the commercial customer count. BigBear.ai, on the other hand, relies on federal government contracts for the majority of its revenue. The unpredictability associated with government spending is the reason why BigBear.ai's latest quarterly performance wasn't up to the mark.
Lower-than-expected revenues from its Army contracts led to an 18% year-over-year revenue decline in Q2 and also forced management to lower its guidance.
It's clear that BigBear.ai needs to take a leaf out of Palantir's playbook and more aggressively pursue commercial opportunities. CEO Kevin McAleenan realizes this. On the company's latest conference call, he said:
Coming into the role as CEO earlier this year, it was clear to me that our pipeline was narrow and relied on a few large contracts. We have taken steps this year to deepen and broaden that pipeline with additional customers, more prime contract targets, larger opportunities, and expansion into new markets, including internationally.
However, McAleenan added that these changes will take time to materialize.
The next three years could be difficult for this AI software specialist
Analysts significantly reduced their 2025 revenue expectations for BigBear.ai following its latest quarterly report. Their consensus revenue estimate for 2026 has also dipped significantly.
BBAI Revenue Estimates for Current Fiscal Year data by YCharts.
The company was previously expected to deliver healthy revenue growth next year. Though it is still expected to produce a double-digit percentage jump in its top line, the forecast for 2027 points toward another slow year. As such, BigBear.ai stock may remain under pressure. However, investors would do well to keep this stock on their watch lists.
That's because BigBear.ai's strategy of widening its customer base and accessing new markets could pay off, allowing it to potentially outpace Wall Street's expectations over the next three years. The stock is currently trading at 10 times sales, and it may become cheaper following its recent results. So if there are signs of a turnaround in BigBear.ai's business, savvy investors could consider buying this AI stock at a cheap valuation before the company steps on the gas.
