BigBear.ai Stock Drops 60% in Just 1 Month. Is This Massive Sell-Off a Huge Buying Opportunity for Investors?

A big risk for investors when buying speculative stocks is that they can be incredibly volatile. As of Monday's close, shares of data analytics company BigBear.ai Holdings (NYSE: BBAI) were down more than 64% in just the past month. While the tech stock has a lot of potential in artificial intelligence (AI), its valuation has often fluctuated significantly, with a lot depending on investor sentiment, particularly from retail investors.

Can the stock recover from this significant drop and be a good buy right now, or are you better off staying away from BigBear.ai?

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Is investor sentiment in AI stocks crumbling?

Many AI stocks have been struggling this year. A combination of factors, such as DeepSeek's cheaper AI model, sky-high valuations, the possibility of a slowdown in AI spending, and question marks about where the economy is headed are some of the big issues which are making investors think twice about the tech sector these days.

Even chipmaker Nvidia isn't immune to the effects. Its market value has fallen 14% over the past month. While that's nowhere near the decline that BigBear.ai has gone on during that time frame, it's also arguably the safest AI stock you can own; if Nvidia's struggling, then that doesn't bode well for riskier stocks like BigBear.ai.

The big question is whether this is the start of a much larger sell-off in tech or if this may be just a knee-jerk reaction in the markets. But with valuations running high for some time, I'm inclined to believe that this may not be just a temporary correction.

BigBear.ai's financials don't offer any help

It's one thing if a sector of the market is just struggling, but if BigBear.ai is doing well, it's possible for the stock to rebound. Unfortunately, the company's underwhelming financials don't help make a case why BigBear.ai shouldn't be nosediving.

It posted its year-end earnings earlier this month, and the company's top line showed just 2% growth for 2024, coming in at $158 million. Moreover, its guidance for 2025 only calls for revenue to come within a range of $160 million to $180 million. The positive development was that the company did grow its backlog, from $250 million to $418 million as of the end of last year, so there may be much more growth in the future.

However, the more concerning number for BigBear.ai investors may be the $38 million the company used up in its day-to-day operating activities last year -- that accelerated from $18 million in cash burn in the previous year. If the company isn't improving its cash flow, then that heightens the risk of increased stock offerings in the future, in order to raise cash to help grow its operations; the company had just $50 million in cash and cash equivalents as of the end of 2024.

This is still a highly risky and volatile stock to own

BigBear.ai was a risky and speculative buy before it went on to crash in the past month, and nothing has changed since then. While its valuation is lower, that doesn't guarantee that it's going to recover from this latest decline, or that the stock can't go even lower.

If you're bullish on AI, you're better off going with Nvidia or a more established tech company. BigBear.ai is still fairly unproven and while it is securing deals and adding to its backlog, it's still going to be a tough road ahead for the company and it's likely only going to continue burning through cash and accumulating losses for the foreseeable future.

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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.