Is BigBear.ai Stock a Buy Now?

Artificial intelligence (AI) stocks have been battered along with the broader stock market recently as worries about the near-term outlook weigh on the minds of investors. Their fears have largely been prompted by concerns about how President Donald Trump's tariff and trade war plans will impact the U.S. economy.

But this situation has created some opportunities to scoop up the shares of good companies at more attractive valuations. Could BigBear.ai (NYSE: BBAI) be one of them? It supplies AI solutions to support both government and commercial entities.

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Year to date through March 12, BigBear.ai stock was down about 27%. That share price drop could make this a great time to grab shares -- or it could be a warning signal to stay away from the stock.

BigBear.ai's wild ride

Although BigBear.ai's stock is down in 2025, over the past 12 months, it was up by about 33% through March 12 thanks to investor enthusiasm for AI.

The January announcement of Project Stargate -- a joint venture of Oracle, SoftBank, and OpenAI that will pour $500 billion into AI infrastructure -- followed by Vice President Vance's February speech that the U.S. intends to lead the world in AI, helped propel BigBear.ai shares to a 52-week high of $10.36 last month.

Circumstances changed in March. The broad market's pullback was a factor in BigBear.ai's decline, but it was not the whole story.

The company posted its fourth-quarter earnings report on March 6, and shares promptly plunged in response. In Q3, management had forecast that 2024 revenue would land between $165 million and $180 million. Instead, 2024 sales came in at $158.2 million. In light of that disappointing outcome, it's no wonder the stock took a hit.

Reasons to consider BigBear.ai stock

Though it fell short of its guidance, BigBear.ai's 2024 revenue still represented growth from 2023's $155.2 million as the company secured new business from the U.S. government. Moreover, management has projected that 2025 sales will rise to somewhere in the $160 million to $180 million range.

Considering that the company just missed its 2024 guidance, is this new projection worth trusting? Well, this time, management sees a number of factors to support its optimism.

First, BigBear.ai has a new CEO, Kevin McAleenan. In the weeks since McAleenan took over in January, the company strengthened its balance sheet by reducing net debt from a hefty $150 million at the end of Q4 to $27 million in March.

Also, the company is focusing its AI efforts around four key segments: border security, defense, intelligence, and critical infrastructure. These areas have all been targeted for AI investments by the U.S. and other governments, according to BigBear.ai, which makes them attractive markets to pursue.

Factors that raise concerns about BigBear.ai

A significant caveat exists to BigBear.ai's investment thesis: President Trump has told his administration to find ways to cut government spending. BigBear.ai generates the bulk of its revenue from federal contracts, and its guidance is based on the premise that it will keep those contracts. Federal spending cuts could substantially reduce its sales.

Even worse, the company could get into financial difficulty if sales sink. BigBear.ai is not profitable, and its losses are already mounting. In 2024, the company's net loss totaled $257.1 million, primarily due to changes in the value of its derivatives portfolio. That was more than four times greater than its net loss of $60.4 million in 2023.

Another factor to consider in weighing whether to invest in BigBear.ai is its stock valuation. Given that it's not profitable, the best metric to use is the price-to-sales (P/S) ratio, which measures how much investors are willing to pay for every dollar of a company's revenue.

Data by YCharts.

Because its stock price fell recently, BigBear.ai's P/S multiple is more reasonable now. However, it's still elevated compared to where it was for a substantial portion of the past year.

Further clouding matters is the uncertainty about whether the company will be able to grow its revenues in 2025 amid federal budget cuts. With all that in mind, I'd suggest interested investors hold off on buying BigBear.ai shares for now, and instead wait to see how the company fares over the next couple of quarters.

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Robert Izquierdo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Oracle. The Motley Fool has a disclosure policy.