How BigBear.ai Is Riding The Defense AI Wave

June 26th, 2025 by Trefis Team
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BBAI
BigBear.ai

BigBear.ai (NYSE:BBAI), an AI solutions provider specializing in national security, presents a high-risk, high-reward investment proposition. While the company benefits from significant contract wins and strong positioning within the defense sector, it’s also plagued by persistent financial challenges and extreme stock volatility.

BBAI’s stock performance has been a rollercoaster. It surged seven-fold from under $1.50 in July of last year to over $10 in early 2025, fueled by enthusiasm for the AI sector. However, it subsequently plummeted to its current level of around $5, reflecting both a broader market correction and concerns about the company’s execution. That said, if you seek upside with lower volatility than individual stocks, the Trefis High Quality portfolio presents an alternative – having outperformed the S&P 500 and generated returns exceeding 91% since its inception. Separately, see – QuantumScape: What’s Happening With QS Stock?

 

Stagnant Revenue and Deepening Losses

Despite its promising market, BBAI’s financial trajectory reveals concerning stagnation. BigBear.ai’s Revenue in 2024 was $158 million, a mere 2% increase from $155 million in 2023. This minimal growth extends to a multi-year pattern, with 2022 revenues also around $155 million. Compounding the issue, losses significantly deepened to $296 million in 2024, a staggering 318% increase from the previous year.

While BigBear.ai did show some quarterly momentum—with Q4 2024 revenue increasing 8% to $44 million and Q1 2025 revenue rising 5% to $35 million, primarily driven by Department of Homeland Security and Digital Identity awards—this appears insufficient to offset the broader pattern of underperformance. The company even failed to meet its revised 2024 sales target of $165 million, highlighting persistent operational challenges despite new contract wins.

Positive Catalysts on the Horizon

Despite its financial struggles, BigBear.ai possesses several significant positive drivers:

  • Growing Backlog: The company’s backlog surged 2.5 times from $168 million at the end of 2023 to $385 million by the end of March 2025. This substantial increase provides crucial revenue visibility, even amid execution challenges.
  • Key Government Contracts: BBAI has secured several significant government contracts in 2025, including a 3.5-year, $13.2 million sole-source Department of Defense (DoD) contract to modernize a critical force management platform.
  • Strategic Market Position: BigBear.ai operates in critical AI applications for national security, developing solutions like facial recognition systems for airports and AI-enhanced shipbuilding software for the U.S. Navy. The current heightened geopolitical environment strongly supports increased defense AI spending, creating a favorable market backdrop for the company.

Significant Risks to Consider

However, investors must weigh these positives against substantial risks:

  • Execution Concerns: The company’s persistent inability to achieve meaningful revenue growth, even within a favorable AI and defense spending environment, raises fundamental questions about its execution capabilities and market competitiveness.
  • Reliance on Federal Contracts: BBAI’s heavy reliance on federal contracts creates vulnerability to defense budget cuts or policy shifts. Any reduction in government AI spending would disproportionately impact the company’s financial performance.
  • Extreme Stock Volatility: The stock demonstrates outsized sensitivity to broader market conditions. For example, during the 2022 inflation shock, BBAI fell 95% compared to the S&P 500’s 25% decline. More recently, it dropped over 75% when the S&P contracted 19% due to tariff concerns. See – Buy or Sell BigBear.ai stock.
  • Valuation Discrepancy: With minimal revenue growth and substantial losses, BBAI’s current valuation appears disconnected from its operational fundamentals. It seems to rely heavily on overall sector momentum and geopolitical tailwinds. At its current levels of $5, BBAI stock is trading at 5.7 times trailing revenues, compared to 3.1 times for the broader S&P 500 index, and the stock’s own four-year average P/S ratio of 3.6 times.

Investment Outlook

Overall, BigBear.ai represents a high-risk, high-reward play on defense AI spending. While the company benefits from strong backlog growth and operates in strategically important sectors, its persistent revenue stagnation, deepening losses, and extreme stock volatility make it unsuitable for risk-averse investors. The stock’s appeal largely hinges on the continuation of geopolitical tensions driving defense AI investment and, crucially, the company’s ability to finally translate its contract wins into sustainable and meaningful revenue growth. Now, we apply a risk assessment framework while constructing Trefis High Quality (HQ) Portfolio which, with a collection of 30 stocks, has a track record of comfortably outperforming the S&P 500 over the last 4-year period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

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