Why BigBear.ai Stock Could Eventually Go to $0

Who doesn't love bears? They're big and furry and ... well, incredibly dangerous.

Just like a real bear, artificial intelligence (AI) data analytics company BigBear.ai (NYSE: BBAI) has charmed investors: Its stock price is up about 107% over the past year:

But BigBear.ai could also be incredibly dangerous ... to your savings. Here's why this hot stock could go to $0.

Where are the sales?

Spending on AI is currently at record levels, and it's only expected to increase in the coming years. So you'd expect an AI start-up -- even one that isn't yet profitable -- to be growing its revenue as it takes advantage of the AI spending boom.

Image source: BigBear.ai.

But BigBear's revenue isn't growing. At all. In fact, its trailing-12-month (TTM) revenue has actually declined by 7% over the last three years. That's during a period where most other AI pure plays have seen substantial revenue gains. C3.ai, for example, has grown its TTM revenue by 32.3% over the last three years. Palantir Technologies' TTM revenue has more than doubled. And SoundHound AI's revenue is up a massive 376.7%.

BigBear's revenue downtrend seems to be accelerating. In Q3, its revenue fell 20% year over year to $33.1 million. If revenue keeps dropping like that, the share price is eventually going to follow.

Hoping for a miracle acquisition

Despite the revenue declines, BigBear's management is clearly hoping its latest acquisition will turn the company's fortunes around.

That acquisition is of Ask Sage, a security-focused generative AI platform. Ask Sage was built specifically for defense and national security agencies, so the acquisition makes some sense for BigBear, whose major current customer is the U.S. Army. CEO Kevin McAleenan claims that the market has been asking for a secure, multifunctional AI platform that the company will now be able to offer by integrating Ask Sage with BigBear.ai.

I don't blame McAleenan for being optimistic: According to BigBear, Ask Sage is already used by 100,000 people across 16,000 different government teams, and it's forecast to bring in $25 million in annual revenue for a purchase price of just $250 million in cash. It could be a good fit. But it might not be, because generative AI is a radically different product from BigBear's current offerings.

A risky proposition

Sometimes acquisitions just don't pan out.

The Ask Sage acquisition could result in higher margins, new customers, and upselling opportunities. But it could also cause integration problems, customer dissatisfaction, and mission creep. BigBear's management has been clear that it sees mergers and acquisitions (M&A) as its primary driver of "rapid growth." That's not only a risky strategy for such a small company, but it also speaks volumes about management's lack of confidence in the growth prospects of its core product.

BigBear is a small start-up without deep pockets. It will probably have to issue new shares to fund an aggressive M&A strategy, and it's already increased its share count by 272.9% over the last three years. Not much would have to go wrong for BigBear to find itself shedding customers, revenue, and share price value faster than a hibernating grizzly sheds pounds.

But unlike a grizzly's weight, BigBear's stock just might get to $0.

John Bromels has positions in C3.ai. The Motley Fool has positions in and recommends Palantir Technologies and SoundHound AI. The Motley Fool recommends C3.ai. The Motley Fool has a disclosure policy.