BigBear.ai stock has been a huge AI winner over the past year. But the company’s falling revenues and lack of profits are big red flags.
The S&P 500 has continued to notch new record highs this year, thanks in large part to soaring interest in artificial intelligence (AI) technology, which is fueling massive spending on both hardware and software. But as impressive as the S&P 500’s 17% gains over the past year have been, they pale in comparison to AI data analytics company BigBear.ai Holdings‘ (BBAI 9.63%) 273% climb over that period.
When a stock delivers returns like this in such a short amount of time, it’s understandable that some investors might start to think that buying and holding it could help them retire as millionaires. We’re in the early innings of AI, after all, so why can’t brighter days still be ahead for this stock?
Unfortunately, I don’t think that’s the right way to think about BigBear.ai. In fact, it might be best not to own this stock right now at all.
Image source: Getty Images.
Why BigBear.ai stock is soaring
There’s a lot of optimism among investors right now surrounding artificial intelligence stocks, as companies and governments invest in AI data center infrastructure and increase their use of AI software. One way BigBear.ai is tapping into this demand is by offering AI logistics and analytics, which can improve the efficiency of everything from supply chains to national security.
Management says the company’s total addressable market was $80 billion in 2024, but it forecasts that it could grow to $272 billion by 2028 for the combined private and public sectors. Part of the enthusiasm for the company’s shares comes as the U.S increases its spending on AI defense, a market that could be worth up to $70 billion by the mid-2030s. BigBear.ai makes a “significant portion” of its revenue from government contracts, and AI defense is an important component of its potential.
Also, because AI stock enthusiasm is sky high right now, BigBear.ai has at times surged for no obvious reason. Case in point: Last week, after trending down over a period of a couple of months, it jumped by more than 10% in a single session on no news at all.
Why BigBear.ai won’t help you retire a millionaire
If the good news is that BigBear.ai’s stock has made impressive gains over the past year (albeit quite bumpy ones), the bad news is that the company has little to show in the way of growth. Revenue fell 18% year over year to $32.5 million in Q2, following another decline in Q1.
With sales slipping, management recently cut its revenue guidance for the year to about $132 million — 22% lower than the midpoint of its previous forecast. Lower sales volumes from some government contracts were the problem during the quarter, but upon closer inspection of the details, BigBear.ai’s situation doesn’t look much better.
The company’s gross margins slid to 25% in the quarter, down from nearly 28% in the year-ago period. That continued a pattern of inconsistency over the past year. Worse, BigBear.ai is nowhere near profitable. Its non-GAAP (adjusted) earnings before interest, taxes, depreciation, and amortization (EBITDA) came to a loss of $8.5 million in the quarter, significantly worse than its adjusted loss of $3.7 million in Q2 2024.
The picture that should be coming into focus here is that BigBear.ai isn’t much of a growth stock. A temporary slowdown in business could be forgivable, but that’s not happening with the company. Instead, its sales continue to slide, and its losses are widening.
With all that in mind, I have serious doubts that BigBear.ai stock could grow from here in a way that would help its shareholders retire as millionaires. The stock is riding the AI wave right now, but financial reality will eventually catch up with it.
Chris Neiger has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.