BigBear.ai Holdings Stock Crashes—Time to Buy or Bail?

BigBear.ai just got mauled by the markets. Shares nosedived—but is this a classic 'blood in the streets' moment or the start of a deeper plunge?

The AI darling's brutal wake-up call

No sugarcoating it: investors got spooked. The question isn't why it fell (everything does eventually), but whether this is a temporary glitch or a fundamental crack in the thesis.

Wall Street's favorite game: overreact first, ask questions later

Remember—the same geniuses who priced this as the next NVIDIA last week are now dumping shares like hot garbage. Maybe they finally read the financials.

The crypto parallel: volatility breeds opportunity

Just like Bitcoin's 30% drops during bull markets, AI stocks shake out weak hands. The real play? Separating signal from noise while the herd panics.

Bottom line: This isn't your grandma's blue chip. High-risk, high-reward plays demand steel nerves—and the wisdom to know when you're buying the dip versus catching a falling knife.

Image source: Getty Images.

A big revenue miss for BigBear.ai

In Q2, BigBear.ai badly missed revenue expectations, as revenue sank 18% year over year to $32.5 million. That missed the $40.6 million analyst consensus, as compiled byMarket Intelligence.

The company blamed the miss on the federal government's efforts to reduce costs, saying that this disrupted contracts it has with the United States Army, which has been working to modernize its data architecture. Note, however, that this doesn't appear to have affectedwhich reported great results and recently signed a $10 billion, 10-year contract with the U.S. Army that consolidated 75 contracts into a single contract.

BigBear.ai said it "welcomes" this type of disruption, as it will lead to the Army using more software solutions to solve mission-critical problems. However, CEO Kevin McAleenan admitted that the company relies on too few large contracts and needs to broaden its customer base and the market it serves.

How much of a true software company BigBear.ai actually is, though, is questionable, as can be seen in its low gross margins. In the quarter, its gross margin fell to 25% from 27.8% a year ago. Those are just not software or AI gross margins. Because the company's engineers and data scientists must co-locate and be on-premises for many of its government projects, it has structurally low gross margins. Gross margins are important, as the higher they are, the easier it is to turn revenue into profits. In comparison, Palantir had a gross margin of nearly 81% in Q2.

On the profitability front, adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) was a loss of $8.7 million, compared to a loss of $3.7 million a year ago. The decline came from lower revenue, reduced gross margin, and higher research and development expenses.

The company continued to burn cash in the quarter, but it took advantage of its high stock price to sell shares and solidify its balance sheet. It generated cash FLOW from operations of negative $3.9 million in the quarter and negative $7.1 million in the first half. However, after raising $293.4 million in proceeds from at-the-market (ATM) stock sales, it ended the quarter with $390.8 million in cash and equivalents and $103.1 million in debt.

Looking ahead, BigBear.ai reduced its full-year revenue forecast to be between $125 million and $140 million, down from a prior outlook of $160 million to $180 million. That WOULD be a decline from the $158.2 million in revenue the company saw in 2024.

Should investors buy the dip or stay away?

BigBear.ai is simply not a software company riding the AI wave. It doesn't have the gross margins or predictable revenue stream of a software-as-a-service (SaaS) company. It also hasn't seen a big revenue lift from AI. In fact, its revenue this year is set to come in at the lowest level ever since the stock debuted in December 2021 through a SPAC.

While the stock has staged a big rally this year, its share count is also up nearly 50% in the past year. That's massive dilution.

The company has done nothing to deserve the big rally it's seen over the past year, and I think the sell-off in the stock was actually pretty tame given its results and guidance. While some investors may want to hope that BigBear.ai can turn into the next Palantir, that is just highly unlikely.

I think a lot more downside could be in store, and as such, I'd stay far away.