BigBear.ai Explained: Why the Stock is Running, and What Could Go Wrong
BigBear.ai Explained: Why the Stock is Running, and What Could Go Wrong
By:Gus Downing
BigBear.ai (BBAI) is up 90% in the last 30 days and 339% in the last year.
They have made headlines recently after their biometric identity system was implemented in Nashville International Airport.
While the recent rally and future growth prospects are undeniable, investors still have a number of reasons to remain cautious.
Why BigBear.ai Shares Are Suddenly Soaring
BBAI has surged over 90% in the past 30 days and over 339% in the past 12 months, making big waves and catching the attention of both retail and insider AI-focused investors. The core catalyst behind this move is BigBear’s Enhanced Passenger Processing (EPP) biometric identity system called VeriScan.
VeriScan was recently implemented in the Nashville International Airport to speed up customs processing, and the sentiment within the company and among investors is that VeriScan will be widely implemented across U.S. ports of entry over the coming months and years.
Retail and insider investors all align in their bullish sentiment for BBAI. In the retail space, StockTwits chatter about BBAI was up 145% in the 24 hours following the VeriScan rollout in Nashville. As far as insiders, Michigan Representative Lisa McClain recently added between $15,000 and $50,000 of BBAI stock to her 401(k).
Earnings and Guidance Tell a Different Story
While retail and insider investors share a bullish sentiment for BBAI, institutional investors remain unsold. This pessimistic outlook stems from BigBear’s fundamentals, which do not align with its recent aggressive growth.
Last month, BBAI reported Q2 revenue of just $32.5 million, which is actually a decrease of 18% year-over-year, and a net loss of $0.71 per share. Both of those core metrics came in far below expectations, and to make matters worse, the company also cut their full-year guidance from $160-$180 million down to $125-$140 million.
Management cited government contract disruption as the key reason for the adjustment, and full-year adjusted EBITDA guidance was withdrawn entirely due to uncertainty. Historically, BBAI has struggled with delayed contracts, cash burn, and model execution. Many analysts warn that volatile government spending and tech execution gaps could undermine this rally in the near future.
Short Squeeze Fuel or Dilution Trap?
Both retail and institutional investors make good points when it comes to BBAI; that’s to say, while there are many bullish factors working in favor of the stock, there are just as many bearish factors working against it.
Bullish variables for the future include continued integration of BigBear’s AI platforms in airports, their ability to land contracts with the U.S. Department of Defense, expansion into logistics and international markets, and high (28%) short interest on the stock, which could trigger a short squeeze. Further expansion or success in any of these sectors, or retail investors creating a short squeeze, could drive BBAI to new heights.
Bearish variables for the future include declining top line growth, weakening contract timing from government clients, risk of dilution, and valuation risk. The latter two are the most alarming; in regards to dilution, BigBear has filed for the potential sale of 65 million new shares, citing a need for cash. In regards to valuation, numerous analysts believe the current fair value for BBAI is about 20% lower than where shares are currently trading.
If BigBear can land more contracts with airports and governments and expand into international markets, shares could see a decisive move up from penny stock to small cap status. If top line growth continues to decline and they continue to dilute their own shares, the stock could make a quick return to less than $5 per share.
Chasing AI Momentum Comes With Risks
BigBear is a textbook example of AI-driven hype flanked by very real performance risk. The rally has been powered by small wins, high potential upside, and headline-grabbing deployments like the Nashville airport. However, without sustained revenue or contract expansion, there is a highly plausible scenario that this is another vaporware illusion that can not translate into predictably growing earnings.
As with other high-volatility AI plays, short-term trading success may be tempting, but understanding the risk, volatility, and business fundamentals is paramount to anyone thinking about investing.
Gus Downing is host of the tastylive Network show Risk and Reward. @GainsByGus
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