Should You Invest in BigBear.ai?
BigBear.ai has attracted significant attention in the artificial intelligence sector, yet investors may need to approach this stock with caution. Over the past three years, its share price has soared by 452%. This surge has sparked enthusiasm for the company’s AI data analytics services, which are marketed to both private enterprises and the U.S. government.
Should You Invest in BigBear.ai?
Despite its impressive price increase, there are pressing concerns that investors should consider before investing in BigBear.ai.
1. Declining Revenue
Many tech companies experience rising revenue when they tap into burgeoning trends. However, BigBear.ai reported a notable decline in sales, with the second-quarter revenue dropping 18% year-over-year to $32.5 million. This downturn prompted the company to revise its 2025 revenue projections down to $132.5 million, significantly lower than the previous estimate of $170 million. Additionally, the company missed its 2024 sales guidance, reporting $158 million compared to its low-end target of $165 million.
2. Widening Losses
BigBear.ai continues to operate at a loss, with its adjusted loss in the second quarter reaching $8.5 million based on EBITDA. Alarmingly, this figure represents more than a twofold increase compared to the previous year. Contributing to these growing losses are rising research and development costs, which increased by 23% to $4.3 million. Furthermore, the company’s gross margin fell from nearly 28% in the previous year to 25% this quarter, raising further red flags about its financial health.
3. High Share Valuation
Despite the losses and declining revenue, BigBear.ai’s share price has experienced remarkable growth. Its price-to-sales (P/S) ratio has reached 13, significantly higher than the average P/S ratio of around 3.5 for stocks within the S&P 500. While some high-growth tech stocks may justify high valuations, the deteriorating financial metrics of BigBear.ai raise questions. Investors should critically assess what premium they are paying for a company facing revenue decline and escalating losses.
Conclusion
In light of these factors, it may be prudent for potential investors to hesitate before purchasing shares in BigBear.ai. The company must demonstrate its ability to reverse revenue declines and control losses before it becomes a viable investment option. With high expectations already factored into the stock price, failure to achieve substantial financial improvements could lead to significant declines for current shareholders.
