BigBear.ai: Honey or a Hornet's Nest? An Options Strategy.

Artificial intelligence (AI) represents one of the most transformative technological shifts in modern history. BigBear.ai (NYSE: BBAI) has capitalized on this revolution through its AI-powered analytics solutions, driving its shares up 136% over the past six months.

Recent government contract wins and strengthening financial performance have attracted significant investor interest in this emerging player. Let's examine whether the stock remains a buy at current levels or if investors should consider alternative strategies to gain exposure to this top AI stock.

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New leadership drives transformation

On Jan. 15, BigBear.ai appointed Kevin McAleenan as chief executive officer. McAleenan, who had been serving as the company's president, stepped into the CEO role, bringing extensive experience from both the government and private sectors, including his previous position as acting secretary of the U.S. Department of Homeland Security.

McAleenan's background includes co-founding Pangiam, which BigBear acquired in 2024, and nearly two decades of government service, including his role as commissioner of U.S. Customs and Border Protection. His unique combination of entrepreneurial success and deep understanding of national security priorities positions the company to expand its presence in the defense and security markets.

Financial momentum accelerates

BigBear.ai delivered strong revenue growth of 22.1% year over year in the third quarter of 2024, reaching $41.5 million. The company also improved its gross margin to 25.9%, up from 24.7% in the prior year, benefiting from an increased mix of commercial solutions and improved operational efficiency.

The quarter still resulted in a net loss of $12.2 million, compared with net income of $4 million in Q3 2023, primarily attributed to non-cash warrant valuation changes. Despite that, the company achieved positive adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $0.9 million and maintained a robust backlog of $437 million, supporting future revenue projections.

Government contracts fuel expansion

BigBear.ai recently strengthened its government sector momentum with two significant contract wins. The company secured a five-year, $165 million sole-source prime contract with the U.S. Army to deliver advanced force management solutions powered by AI analytics, strengthening its position in defense technology.

In addition, BigBear.ai was awarded a subcontract through Concept Solutions under the Federal Aviation Administration's (FAA) Information Technology Innovative Procurement Strategic Sourcing program. This 10-year, multiple-award indefinite delivery/indefinite quantity contract has a shared ceiling of $2.4 billion across 14 companies and will enable the FAA to acquire a full range of IT capabilities and solutions.

A prudent options strategy

Despite recent positive developments, the stock's valuation at 5.3 times trailing sales warrants careful consideration, especially since the company's peer group trades at an average of 3.5 times trailing sales. Therefore, investors seeking exposure to BigBear.ai with defined risk might consider a cash-secured put strategy as an alternative to purchasing shares directly.

As an example, using the Jan. 17 options pricing, an investor could sell a January 2026 put option with a $3 strike price. That trade would generate approximately $1.10 per share, or $110 per contract, in premium income before fees.

This strategy offers a potential 37% return over the next 12 months if the stock remains above $3, but it's important to remember that you are obligated to buy 100 shares per contract at the $3 strike price if the option is exercised (i.e., if the stock price falls below $3 at expiration). While this premium can help offset any losses if the stock declines, it will limit any gains in exchange for this downside protection should shares rally significantly higher.

The strategic advantage

BigBear.ai's blend of experienced leadership, improving financials, and expanding government contracts paints a promising picture. However, after the stock's recent surge, a cash-secured put strategy offers a calculated approach to this volatile AI player.

This strategy allows investors to collect a hefty premium while potentially defining their risk, which is a prudent move in a market that can quickly turn from honey to a hornet's nest. While the upside is capped, the income cushions against potential declines, making it a strategic alternative to buying shares outright.

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George Budwell 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.