Investors are optimistic that a decision intelligence software company may evolve into the next Palantir. The remarkable success of Palantir Technologies demonstrates that there is a viable market for artificial intelligence software that aids organizations in leveraging their data to make informed decisions. BigBear.ai Holdings, listed under the ticker symbol BBAI, went public in late 2021 through a merger with a special purpose acquisition company (SPAC).
However, this timing was unfortunate, as a stock market bubble, bolstered by zero-percent interest rates, burst soon after. This has created a challenging period for shareholders, with BigBear.ai’s stock experiencing significant momentum until recent market volatility reduced its value by nearly 80% from previous highs.
This raises the question of whether the current dip is an opportunity to invest before a potential rebound or if the market signals a warning to investors to proceed with caution.
BigBear.ai has not yet achieved the traction seen by Palantir. On the surface, BigBear.ai presents an intriguing investment opportunity. The company’s software focuses on three main functionalities: observe, orient, and dominate. It processes data, analyzes it for patterns and insights, and presents findings in a format that aids operators in decision-making.
The company specializes in applications for government, supply chains, healthcare, and life sciences, with much of its business derived from U.S. government agencies. Like Palantir, which has enjoyed significant success with its AIP platform launched in 2023, BigBear.ai has potential for growth with its current market cap standing at $757 million.
Despite this potential, investors remain in anticipation. BigBear.ai reported revenues of approximately $155 million in 2022 and 2023, with a modest increase to $158 million last year. Management projects revenues between $160 million to $180 million for 2025, suggesting that growth may remain stagnant.
Since 2022, significant interest in AI software has spurred revenue growth for Palantir and its competitor, C3.ai, yet BigBear.ai has not experienced similar success. This raises valid concerns about its business execution and the value of its offerings.
Financials present another concern for BigBear.ai. At the end of 2024, the company had $50.1 million in cash, with cash losses totaling $49.2 million the same year, indicating the likelihood of needing additional capital soon. With approximately $200 million in long-term debt, largely in convertible bonds due in 2029, the company might have to issue stock to raise funds.
The potential for share dilution poses a significant risk due to the company’s cash depletion and limited resources. Management has already converted some debt to stock to alleviate short-term financial pressures. Combined with stock-based compensation over recent years, the diluted share count has more than doubled since 2022.
The issuance of additional shares unfavorably affects shareholders, as it dilutes revenue and profits across a broader base, diminishing potential returns.
BigBear.ai is currently trading at a price-to-sales ratio below 4.0, making it one of the most affordable technology stocks in the market. While low prices can signify a purchasing opportunity, they are not always favorable. The company’s stagnant growth amid robust AI demand, concerning financial statements, and significant dilution risk are cautionary signs. Therefore, despite its low valuation, there are justified reasons for its current pricing.
BigBear.ai needs to make significant advancements to establish itself as an up-and-coming AI company that investors find appealing. Until the company achieves this, its recent stock decline reflects the natural market dynamics impacting fundamentally weak stocks. Investors are advised to consider alternative, safer options for their portfolios.
