The blazing success of Palantir Applied sciences reveals that there’s a respectable marketplace for synthetic intelligence (AI) software program that may assist organizations make the most of their information and make higher choices. BigBear.ai Holdings (NYSE: BBAI) went public in late 2021 by way of a merger with a particular goal acquisition firm, or SPAC.
Sadly, it was awful timing. Quickly after, a inventory market bubble fueled by zero-percent rates of interest popped. It has been a troublesome few years for shareholders, however the inventory had momentum till the current market volatility knocked BigBear.ai again down practically 80% from its former excessive.
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Is that this an opportunity to purchase the dip earlier than the inventory takes off, or is the market telling buyers to remain away?
BigBear.ai hasn’t gained the traction that Palantir has
On the floor, BigBear.ai seems like an thrilling inventory thought. The corporate’s software program performs three major capabilities: observe, orient, and dominate. Primarily, BigBear.ai’s software program ingests information, analyzes it for developments and observations, and presents it in a manner that helps operators make choices.
BigBear.ai makes a speciality of purposes for presidency, provide chains, healthcare, and life sciences. The corporate will get a lot of its enterprise from public businesses within the U.S. authorities. The idea is much like Palantir, which has had immense success since releasing its AIP platform in 2023. BigBear.ai solely has a $757 million market cap immediately, so there may be loads of room for upside if the enterprise expands.
However to date, buyers are nonetheless ready. BigBear.ai’s income was roughly $155 million in 2022, $155 million in 2023, and $158 million final 12 months. Administration expects gross sales of $160 million to $180 million for 2025, which means progress might once more be virtually flat this 12 months.
PLTR Revenue (TTM) information by YCharts
Since 2022, the widespread curiosity in AI software program has pushed sizable income progress for Palantir and C3.ai, one other competitor. BigBear.ai’s failure does not bode effectively. It has change into honest to query its enterprise execution and whether or not its product offers sufficient worth relative to others.
Shareholders might face important dilution
BigBear.ai’s financials are one other challenge. As an illustration, the corporate ended 2024 with simply $50.1 million in money. Money losses had been $49.2 million final 12 months, so it is seemingly administration might want to increase extra funds quickly. The corporate has about $200 million in long-term debt. Most of that’s in convertible bonds due in 2029, so whereas it isn’t a right away challenge, it will increase the chances that administration will increase money by issuing inventory.
BigBear.ai’s money burn and shallow pockets imply share dilution is a serious danger. Administration already transformed a few of its debt to inventory to ease its near-term monetary scenario. Mixed with stock-based compensation over the previous few years, the diluted share rely has greater than doubled since 2022.
BBAI Average Diluted Shares Outstanding (Quarterly) information by YCharts
Keep in mind, the extra shares the corporate points, the more serious it’s for shareholders. Share dilution diminishes a inventory’s upside by spreading income and earnings extra thinly throughout the shareholder base. It is like slicing a pizza into a number of tiny slices. You may eat, however you will not like how a lot you get.
The market might be sending a message
BigBear.ai trades at a price-to-sales ratio below 4.0, making it one of many market’s most cost-effective expertise shares. Low costs can generally be a shopping for alternative, however not all the time. The corporate’s lack of ability to develop amid sturdy AI demand, its troubling stability sheet, and severe long-term dilution danger are all crimson flags. In different phrases, BigBear.ai could also be an inexpensive inventory, however there are good the explanation why.
Hopefully, BigBear.ai could make strides and set up itself as an up-and-coming AI firm that buyers can get enthusiastic about. Till then, the inventory’s washout within the current inventory market sell-off is just nature taking its course, punishing basically weak shares. Traders ought to in all probability look elsewhere for safer alternatives for his or her portfolios.
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Justin Pope has no place in any of the shares talked about. The Motley Idiot has positions in and recommends Palantir Applied sciences. The Motley Idiot recommends C3.ai. The Motley Idiot has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the creator and don’t essentially mirror these of Nasdaq, Inc.
