BigBear.ai (NYSE:BBAI) has been one of the most volatile AI stocks in the past two years but has been running hot in the past six months as the AI rally accelerated. The stock is up 432.3% in the last six months after a 42% rally in the past 24 hours. Is there still room for more upside? Here’s what you need to know.
The recent surge is due to a Department of Defense contract to prototype an AI-powered platform for foreign media analysis. This builds on its existing work with the U.S. Navy and other federal agencies. The company has a small niche in defense tech and analysts think this is sticky revenue that could grow significantly.
Moreover, Kevin McAleenan has been appointed as the company’s CEO. He is the former Acting Secretary of Homeland Security. His connections could lead to even more contracts down the road.
Wall Street certainly seems bullish after the contract win, but many analysts are not very optimistic due to how expensive the stock is. The consensus price target of $5.25 implies 21.5% downside risk from here.
BBAI currently has a valuation of $1.7 billion. It trades at well over 6 times forward sales while having lower revenue growth than most other AI companies. It is expected to grow its full-year 2024 revenue by 8.4% and 14.4% in 2025. However, the company is still very unprofitable and there’s no solid pathway to when it could start generating profits.
Wall Street’s 2035 projections paint a bifurcated picture. Optimists forecast $500 million in revenue (10% CAGR) if BigBear.ai executes flawlessly, and margins would have to improve above and beyond expectations to be anywhere near reasonable even if BBAI stock stayed flat by then.
As for the balance sheet, BigBear.ai already has $66 million in cash against $206 million in debt.
With all that in mind, the financials don’t justify BBAI’s valuation. It is currently a momentum stock benefiting from the AI rally, and if the AI rally cools down, BBAI will probably see a significant correction. You should only buy into it if you have an iron gut.