Why BigBear.ai Stock Skyrocketed Last Week

Key Points

• BigBear.ai stock surged 23.5% over the past week despite no major news for the business.

• The company's share price has continued to climb thanks to excitement surrounding defense-AI investments.

• BigBear.ai's explosive valuation has seen explosive gains lately despite little indication the company's outlook has seen big shifts.

• 10 stocks we like better than BigBear.ai ›

BigBear.ai (NYSE: BBAI) stock closed out this past week's trading with another run of big gains. The software and services company's share price climbed 23.5% from the previous week's market close amid a gain of 0.6% for the S&P 500 index.

BigBear.ai's valuation surged again this past week, as investors continued to place bullish bets on companies with artificial intelligence (AI) tools tailored for the defense industry. The company's share price is now up 101% over the past month and 214% over the past three months.

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BigBear.ai stock continues to surge despite no major news

Even in the absence of apparent meaningful developments for the business, BigBear.ai stock has continued to rally. The company's big valuation gains appear to be primarily connected to the defense-AI investment trend that has been hot in the market.

Palantir has been a top defense-AI play and reached a new valuation high in this week's trading, and BigBear.ai stock has often seen valuation moves that correspond with pricing action for the software leader. Some investors are betting that BigBear.ai could emerge as a Palantir-like winner as demand for AI-powered defense software continues to increase.

What's next for BigBear.ai?

The massive valuation run up for BigBear.ai stock appears to be out of step with the company's recent business performance and near-term outlook. Despite demand tailwinds in the AI industry, the company's revenue increased just 5% year over year in the last quarter. Growth is expected to accelerate in the second half of the company's current fiscal year, but management's midpoint target for annual sales growth of roughly 7.5% still raises valuation concerns following recent gains for the stock.

While it's possible that continued acceleration for sales growth and margin improvements will pave the way for BigBear.ai stock to see more explosive gains above its current valuation level, huge valuation gains in the absence of major news suggest that the company is a risky investment right now. Investors will get a closer look at the business on Aug. 11, when the company publishes its next quarterly report.

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Keith Noonan 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.