BigBear.ai Stock Gets Slammed. Can the AI Stock Rebound?

Shares of BigBear.ai (NYSE: BBAI) were slammed following its fourth-quarter earnings report, retracing its gains from last month after the company announced an important U.S. Department of Defense (DoD) contract. The stock is now down about 25% on the year.

BigBear.ai is an analytics and systems integrator that was formed through the merger of analytics company BigBear and systems integrator NuWave. The company operates in several areas, with offerings around vision artificial intelligence (AI), digital identity, supply chain and logistics management, and national security.

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The company is primarily focused on the U.S. government, with the federal government as its largest customer. However, it also serves customers in the manufacturing, life sciences, and logistics industries.

BigBear.ai's shares skyrocketed last month after it was awarded a contract with the DoD's Chief Digital and Artificial Intelligence Office to design a Virtual Anticipation Network (VANE) prototype, which would use AI models to access news media coming from adversarial countries. The company's stock nearly doubled from $4.91 on the close of Feb. 4 (the session before the announcement) to $9.74 on the close of Feb. 12 after the announcement. However, the stock is now trading well below where it was before the DoD contract win was revealed.

A big revenue whiff

BigBear.ai shares were crumbling after the company missed analyst revenue estimates for Q4. The company said that revenue rose 8% to $43.8 million. That was well below the $50.6 million to $65.56 million the company's full-year guidance implied and well short of the $54.6 million analyst consensus, as compiled by FactSet.

The company had gross margins of 37.4% on the quarter, which reflects a business that is more of a systems integrator and government contractor than a software AI company. For many of its government projects, its engineers and data scientists must co-locate and be on-premises, which adds a lot of costs versus a simple software product. That said, its gross margins did see a nice uplift from the 32.1% level they were at a year ago.

On the profitability front, BigBear.ai was able to turn in positive adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $2 million, although that was down from $3.7 million a year ago. The decline stemmed from increases in expenses.

The company also posted cash flow from operations of negative $14.8 million in the quarter and negative $38.1 million for the year. Free cash flow was negative $15 million for the quarter and negative $38.6 million for the year. It ended the year with nearly $50.1 million in cash and equivalents, and $135.1 million in debt.

Looking ahead, BigBear.ai forecast full-year revenue to be between $160 million to $180 million, representing 1% to 14% growth. That's a pretty wide range that does not indicate that the company has a lot of visibility. Meanwhile, it is looking for adjusted EBITDA to be in the negative single-digit millions.

BigBear.ai noted that its federal government customers continue to operate under a continuing resolution and that there was uncertainty with no budget in place. It also said that as the government works at cutbacks, there could be delays or disruptions with federal contracts. However, management believes the areas the company is involved in, such as border security, defense, intelligence, and critical infrastructure, will remain priorities for AI-driven technology.

Image source: Getty Images.

Can the stock rebound?

BigBear.ai is not a classic software technology company with strong gross margins and high-recurring visible revenue. Meanwhile, it could be facing major headwinds with government budget cuts that are underway. The Trump administration directed the DoD to slash its budget 8% a year for the next five years. And while the February DoD contract win was nice, there is no indication of the dollar amount.

BigBear.ai trades at a forward price-to-sales (P/S) ratio of just about 4.3 times 2025 analyst estimates. For an AI software-as-a-service (SaaS) company with high margins, that would be a pretty attractive valuation. But that's not what BigBear.ai is, despite what its name might indicate.

BBAI PS Ratio (Forward) data by YCharts.

Overall, I would continue to stay on the sidelines. The current government budget-cutting environment remains a risk to companies heavily tied to the federal government, which BigBear.ai is. Throw in its overall lack of visibility and low gross margins, and the stock is just too speculative for my blood.

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Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends FactSet Research Systems. The Motley Fool has a disclosure policy.