BigBear.ai, an artificial intelligence software developer, has experienced significant challenges since its public debut on December 8, 2021. The company entered the stock market by merging with a special purpose acquisition company (SPAC), with its shares initially opening at $9.84. However, the stock now trades at approximately $3.50. Similar to other SPAC-backed startups, BigBear.ai has faced issues with over-promising and under-delivering, compounded by rising interest rates, which have negatively impacted its valuations and emphasized its considerable losses. This situation prompts an inquiry into whether contrarian investors might consider this AI stock as a potential turnaround opportunity.
BigBear.ai focuses on developing standalone AI modules that integrate into an organization’s edge networks. Its primary modules—Observe, Orient, and Dominate—are designed to process substantial amounts of data to expedite client decision-making. The company collaborates with diversified analytics firms like Palantir Technologies for data sharing.
Moreover, BigBear.ai expanded its scope by acquiring Pangiam, an AI vision technology developer, in an all-stock transaction in March. Kevin McAleenan, Pangiam’s co-founder and CEO, succeeded Mandy Long as BigBear.ai’s CEO in January. With his extensive experience in the U.S. government, including serving as acting secretary of the Department of Homeland Security, some optimistic investors anticipate that McAleenan’s connections may help BigBear.ai secure more government contracts.
When reviewing BigBear.ai’s pre-merger revenue forecasts against its actual performance over the past four years, the reasons for the bearish outlook become evident. The company initially projected significant revenue growth, which failed to materialize, as highlighted in the following revenue forecast versus actuals:
– 2021: $182 million forecasted vs. $146 million actual
– 2022: $277 million forecasted vs. $155 million actual
– 2023: $388 million forecasted vs. $155 million actual
– 2024: $550 million forecasted vs. $158 million actual
Blaming factors like macroeconomic challenges, intense competition, and the bankruptcy of key customer Virgin Orbit in 2023, the management has acknowledged the company’s stagnant growth rate. Notably, competitors such as Palantir and C3.ai, despite facing similar challenges, have managed to grow faster and achieve higher revenue. Furthermore, BigBear.ai’s minor revenue growth in 2024 primarily resulted from its acquisition of Pangiam, and excluding this factor, its revenue would likely have declined.
Looking forward, BigBear.ai has obtained three new government contracts under McAleenan’s leadership, including those with the Department of Navy’s SeaPort Next Generation program and the Department of Defense for custom AI model analysis and automated force management and analytics. The company projects a potential revenue increase for 2025 by 1% to 14%, targeting a range of $160 to $180 million, while analysts estimate a 7% rise to $170 million. Despite possessing an enterprise value of $983 million and being valued at six times estimated earnings, critics argue it is not sufficiently attractive to be considered undervalued.
Nevertheless, the management anticipates remaining in the red for 2025, forecasting adjusted EBITDA to fall in the “negative single digit millions,” compared to negative $2 million in 2024. The company’s strategy of issuing additional shares has resulted in an 86% increase in total outstanding shares since its public introduction and may continue to dilute shareholder value through future offerings and stock-based compensation. Over the past year, company insiders have sold shares more than 21 times as many as they have bought.
The stock of BigBear.ai remains contentious. It witnessed a surge in November, along with other AI stocks, following Donald Trump’s presidential election victory, as investors anticipated increased domestic AI investment amid the U.S.-China tech rivalry. Although the stock rose over 400% at its peak, Trump’s subsequent government spending cuts dashed those hopes, causing the stock to fall again significantly. BigBear.ai’s management has cautioned that potential government shutdowns or substantial shifts in government spending could necessitate revisiting its guidance.
While some argue that BigBear.ai’s relationship with the Trump administration could secure more government contracts, others remain skeptical, pointing out that as a small entity in the AI market, the company lacks the scale and pricing power to compete effectively with larger industry players.
As of the end of 2024, BigBear.ai had $50 million in cash and equivalents and $134 million in long-term debt. Though the company has postponed much of its debt maturity to 2029, its ability to meet payment obligations might be compromised if it fails to curtail its net losses.
In conclusion, the outlook for BigBear.ai’s stock remains polarized. Despite appearing potentially appealing after a recent 64% decline since its peak in 2025, the stock is not considered undervalued enough for a strong investment case. Prospective investors may opt to wait until the company demonstrates sustainable growth in a competitive landscape, avoiding reliance on temporary acquisitions to boost short-term sales.
