Is BigBear.ai Stock a Buy Now?

Key Points

• BigBear.ai's revenue fell 18% in the second quarter.

• Its EBITDA loss widened in the quarter and gross margins fell to 25%.

• Investors are better off avoiding this artificial intelligence stock until it can prove its worth.

• 10 stocks we like better than BigBear.ai ›

BigBear.ai's (NYSE: BBAI) share price rocketed 275% over the past 12 months as investor enthusiasm for the company's artificial intelligence data analysis platform grew. Some investors hope BigBear.ai could become the next Palantir Technologies, which has rapidly expanded customers in both the private and public sector, driving sales higher and sending its share price soaring 378% over the past year.

But despite some investors' enthusiasm for BigBear.ai, there are some significant problems with company that I think some investors may be overlooking. Namely, the company's sales are unimpressive and BigBear.ai far from being profitable. Here's why investors should avoid BigBear.ai stock right now.

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Image source: Getty Images.

1. BigBear.ai's revenue continues to disappoint

BigBear.ai's sluggish revenue growth has been a big reason I haven't been impressed with the company for a while, but things turned worse in Q2, when sales actually decreased by 18% from the year-ago quarter to $32.5 million. The company's management said in a press release that the decline was due to "lower volume on certain Army programs."

Every company has a bad quarter now and then, but BigBear.ai developed a pattern of lackluster revenue. Here's what the company's sales look like over the past four quarters:

Data source: BigBear.ai.

Notice a pattern? Over the past four quarters the company's sales growth decelerated on a year-over-year basis. The worst of which occurred when the company reported Q2 in August, in which sales actually declined from the year-ago quarter.

The recent drop in sales led BigBear.ai's management to cut its sales outlook for 2025 to about $132.4 million, down from its previous guidance of $170 million, both at the midpoint.

BigBear.ai doesn't disclose how much revenue comes from its government contracts, but it does say in its SEC filings that "a significant portion" comes from the government and public sector agencies. With the government cutting back on some of its spending right now and federal workforces being reduced, BigBear.ai may be experiencing some of those cuts.

2. It's unprofitable and margins are erratic

In addition to BigBear.ai's revenue problems, it's also important to highlight that the company isn't profitable right now, not by a long shot, and that its gross margins have been pretty erratic.

BigBear.ai's non-GAAP (adjusted) earnings before interest, taxes, depreciation, and amortization (EBITDA) was a loss of $8.5 million in Q2, worse than its loss of $3.7 million in the year-ago quarter. That trend shows the company's core operations aren't improving.

Gross margins are also raising a red flag. In Q2, BigBear.ai's gross margin fell to 25%, down from 27.8% a year earlier. The chart below shows just how inconsistent the company's gross margins have been over the past several years and that Q2 margins were at a near three-year low.

Data source: YCharts.

For a company already operating at a loss, these erratic gross margins make the climb toward profitability even steeper.

BigBear.ai stock is not a buy right now

Because of the company's losses, disappointing gross margins, and sliding revenue, investors would be better off not buying BigBear.ai stock right now. The company has a lot to prove before it looks attractive -- if it ever will.

BigBear.ai needs a rapid acceleration of sustained impressive sales for the company be worth a look, and even then, investors should keep a close eye on what's happening with the company's earnings and gross margins.

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Chris Neiger has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Palantir Technologies. The Motley Fool has a disclosure policy.