It's been a roller-coaster year for BigBear.ai (BBAI 9.24%) so far, with shares of the company rising rapidly earlier in the year before a glum outlook in August sent the stock down big time.
The company, which is known for providing artificial intelligence (AI) software solutions to both commercial and government customers, has found growth difficult to come by. So, it was not surprising to see the stock fall sharply three months ago when it cut its full-year guidance. Investors, however, seem to be upbeat about BigBear.ai's prospects as it is operating in a fast-growing market.
That explains why the stock is still up 61% in 2025 despite all the volatility that it has witnessed. The company's latest quarterly report has boosted investors' confidence once again, sending BigBear.ai's stock price to just over $7. Let's see why that's the case and check if it would be a good idea for investors to buy this generative AI software specialist at current levels.
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BigBear.ai's latest acquisition could boost its growth
BigBear.ai released its third-quarter 2025 results on Nov. 10. The numbers were not at all impressive, with revenue dropping 20% year over year to $33.1 million. BigBear.ai management blamed this significant drop on "lower volume on certain Army programs." The company gets a majority of its revenue from government contracts, which leaves it vulnerable to changes in budget and the timing of government programs.
NYSE: BBAI
Key Data Points
Its gross margin fell by 3.5 percentage points year over year due to the loss of higher-margin contracts. Moreover, BigBear.ai reiterated its full-year guidance of $125 million to $140 million, which points toward a decline from last year's revenue of $158 million. But BigBear.ai stock popped more than 6% despite such poor numbers.
This pop can be credited to the company's decision to acquire Ask Sage, a generative AI platform "for secure distribution of AI models and agentic AI capabilities, built specifically for defense and national security agencies and other highly regulated sectors." BigBear.ai will pay $250 million for this acquisition, and it looks like this move indeed has the ability to boost the company's falling growth.
That's because Ask Sage is growing at a significantly faster pace than BigBear.ai. Specifically, Ask Sage is expected to clock $25 million in annual recurring revenue (ARR) this year, which would be a sixfold jump over the company's 2024 ARR. BigBear.ai points out that Ask Sage serves more than 16,000 government teams currently. The adoption of its platform seems to be increasing rapidly thanks to its compatibility with popular AI models from the likes of Anthropic, OpenAI, Amazon Web Services, Google, and other open-source models.
Government organizations can quickly deploy AI assistants to automate operations, retrieve data from records and databases, and also run their existing AI solutions on Ask Sage's platform. So, the deal seems to be a good one for BigBear.ai as it could broaden its scope with government customers. BigBear.ai also points out that the Ask Sage acquisition opens up opportunities for cross-selling and the expansion of its customer base.
Investment banking firm H.C. Wainwright & Co. is also confident about the impact of the deal. It has an $8 price target on BigBear.ai, believing that the recent federal contracts and the potential gains from the Ask Sage acquisition could send the stock higher. The firm's price target indicates that BigBear.ai stock could keep heading north.
So, investors may be tempted to buy this AI stock considering that it is trading at just over $7 right now and has the potential to grow at a faster pace following its latest acquisition. However, it would be wise not to jump the gun for a simple reason.
The stock remains overvalued
BigBear.ai is trading at 15.5 times sales, a premium to the tech-laden Nasdaq Composite index's price-to-sales ratio of almost 5.5. The steep decline in the company's top line suggests that it may not be a good idea to buy it at this valuation. Of course, the Ask Sage acquisition has the potential to lift its growth rate in the future, but it would be wise for investors to look for signs of the same.
After all, BigBear.ai's reliance on federal contracts has not been fruitful so far, and the company's latest acquisition may not do much to diversify its presence in the commercial side of the AI software market. Moreover, consensus estimates are projecting potentially patchy growth for the next couple of years as well.
BBAI Revenue Estimates for Current Fiscal Year data by YCharts
However, it would be a good idea to keep BigBear.ai on your watch list as the rapid pace at which Ask Sage is growing could help accelerate its growth. If that's indeed the case, then this AI stock may become worth buying once again.
