Is BigBear.ai a Buy?

Key Points

• BigBear.ai’s second-quarter revenue and earnings came in well below analyst expectations.

• Government cost-cutting initiatives impacted some of BigBear.ai's federal contracts.

• The company has struggled to capitalize on strong global demand for AI solutions.

• 10 stocks we like better than BigBear.ai ›

Shares of BigBear.ai (NYSE: BBAI) have roared 375% higher over the past 12 months, as investors piled into artificial intelligence (AI) and defense tech stocks. But BigBear's second-quarter results stopped the rally in its tracks.

Q2 revenue fell 18% compared to the year-ago period, earnings missed analysts' expectations by a country mile, and management indicated that the company lost some contract work with the U.S. Army. Still, BigBear.ai CEO Kevin McAleenan insisted that President Donald Trump's "big, beautiful bill" presents a massive opportunity for the company, and that BigBear.ai is in a perfect position to pounce.

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If McAleenan is right, investors should think about buying the dip. Is Wall Street underestimating BigBear.ai's growth potential? Or is this simply a case where a company's poor business fundamentals are catching up to the hype?

Image source: Getty Images.

Rough quarter casts doubt on growth potential

BigBear.ai specializes in AI-powered analytics software for defense, security, travel, and logistics applications. Despite strong global demand for AI solutions, BigBear.ai's annual revenue grew just 2% in 2024. In its most recent quarter, revenue dipped 18% to $32.5 million. Through the first six months of 2025, revenue was down 8% compared to the year-ago period.

The company blamed the Q2 revenue drop on government cost-cutting initiatives that have impacted its existing contracts. That includes a five-year, $165 million contract awarded last October to help the Army consolidate and modernize its data infrastructure. On the Q2 earnings call, McAleenan vowed that the company would "compete to win this work again." Still, the near-term impact of the lost contract work is significant enough that BigBear.ai withdrew its previous adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) guidance.

The company's bottom-line performance was a tough pill to swallow for investors. BigBear.ai's net loss per share of $0.71 caught analysts off guard, missing the average estimate by 1,000%. The company's overall net loss ballooned from $14.4 million in Q2 2024 to $228.6 million in Q2 2025. Management attributed the massive increase to accounting charges related to its debt financing.

Investors are always looking ahead, which is why a company's forward guidance can have such an outsized impact on the stock price after earnings are announced. Due to the uncertainty surrounding BigBear.ai's Army contracts, the company lowered its annual revenue guidance to a range of $125 million to $140 million, down from its previous guidance of $160 million to $180 million.

By just about any standard, BigBear.ai's second-quarter results paint a bleak picture. But management sounded more optimistic than ever on the earnings call. Here's why.

BigBear.ai bolstered its balance sheet to fuel growth plans

During the quarter, BigBear.ai raised $293.4 million through at-the-market (ATM) stock sales. It ended the quarter with $390.8 million in cash and equivalents, up from $72.3 million in the year-ago period. It's the strongest balance sheet in the history of the company, according to management.

McAleenan made it clear that BigBear.ai plans to use its newfound liquidity to fund aggressive growth initiatives. While the company has its sights set on "strategic transformational acquisitions," it also plans to ramp up marketing to increase its brand awareness, invest in top-tier talent, and bolster its capabilities to compete for contracts.

McAleenan boldly declared: "We are going on offense in a big way, and going after much bigger game."

If ever there was a time for BigBear.ai to put its foot on the gas, it's now. The"big, beautiful bill," which President Trump signed into law on July 4, adds billions of dollars in funding to areas such as defense technology, border security, and shipbuilding. These are areas where BigBear.ai has "core capabilities," according to McAleenan. Globally, demand for AI-powered automation and analytics capabilities is surging. While this should bode well for BigBear.ai, the company has struggled to capitalize on these massive market tailwinds thus far.

Should you buy BigBear.ai on the dip?

BigBear.ai stock dropped 18% in the two trading days after the company announced its Q2 earnings. But the stock got a bit of a boost on news that the company is launching a biometric chain-of-custody application for cargo security applications in Panama.

The price-to-sales (P/S) ratio is a financial metric that quantifies how much investors are willing to pay for one share of a company relative to how much that share generates in revenue for the company. As of Aug. 15, BigBear.ai was trading at a deep discount to defense-tech juggernaut Palantir Technologies, at least by this metric.

BBAI PS Ratio data by YCharts

Of course, the P/S ratio doesn't tell the whole story here. Palantir's business is growing by leaps and bounds, and the company just reported a monster quarter. Palantir's second-quarter revenue jumped 48% compared to the year-ago period, and management raised full-year revenue guidance. BigBear.ai's full-year revenue is a fraction of Palantir's quarterly revenue, and despite operating in one of the hottest sectors on the planet, sales are trending in the wrong direction.

That said, BigBear.ai's Q2 capital raise shows that management sees a clear need to make the company more competitive through strategic investments. More than likely, that will mean a merger or acquisition.

How BigBear.ai deploys its cash over the coming months will go a long way toward defining the company's future. The opportunities are there. Still, only the most risk-tolerant investors should consider starting a position in BigBear.ai at this point.

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Josh Cable has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.