BigBear.ai recently made a genius acquisition.
BigBear.ai (BBAI 2.85%) is a fairly popular candidate for AI investment as it is one of the few options available on the market for selling AI applications. It’s also a relatively small company with a market capitalization of less than $3 billion. This creates significant growth potential once the product becomes mainstream.
Is BigBear.ai the artificial intelligence candidate of choice, or are there better options? Let’s find out.
Image source: Getty Images.
BigBear.ai focuses on government business
BigBear.ai’s primary business focuses on government or government-adjacent clients. The company’s largest contract is with the U.S. Army to build the Global Military Information Management Target Environment System. This AI-powered application will ensure the U.S. Army is “appropriately staffed, equipped, trained, and resourced” for any mission at hand.
Although this is important software for the military, the number of clients that can use this software is relatively limited. Because of this, BigBear.ai looks more like a consulting company where you can build AI applications than a platform used for various purposes. Building a general-purpose platform is much more profitable in the long run because the client is responsible for building on the platform, rather than BigBear.ai doing everything for the client.
Today’s changes
(-2.85%) -$0.20
current price
$6.82
Key data points
Market capitalization
3 billion dollars
daily range
$6.54 – $7.04
52 week range
$2.36 – $10.36
volume
113M
average volume
121M
gross profit
27.28%
dividend yield
Not applicable
Another area where BigBear.ai’s software is used is to speed up the processing of international travelers at airports. This is also specialized software and can only really be used with other facial recognition applications. They exist, but they are not as prevalent as other AI opportunities.
Because BigBear.ai develops fairly custom software, it’s starting to look like a business that isn’t an attractive investment. But the company’s latest acquisition appears to be a turn in the right direction.
During the third quarter, BigBear.ai acquired Ask Sage, a generative AI platform for defense and national security purposes. It’s a much more attractive business because it’s a platform that can be used in multiple applications. Ask Sage is also growing rapidly, with revenue increasing 6x year over year. This is still a fairly small business, with annual recurring revenue totaling $25 million in 2025, but this is a significant improvement over BigBear.ai’s existing business.
BigBear.ai had to make big changes
During the third quarter, BigBear.ai’s revenue was $33.1 million, down 20% year over year. This is a big question because there has never been a better time for AI companies. AI should be able to sell itself, but this is very worrying considering BigBear.ai’s revenue is shrinking due to reduced contract volume with the US military. The Ask Sage acquisition will certainly help, but it may be too little, too late.
Alongside my concerns about BigBear.ai’s profitability is its gross profit margin. Most software companies have gross profit margins of 70% to 90% and can trade at 10 to 20 times sales. They receive this premium because they expect the market to generate a 30% return in the future. However, BigBear.ai’s gross profit margin is much lower than that threshold, making its valuation very expensive.
BBAI gross profit margin data by YCharts. PS = price to sales.
At 14 times sales, it’s already an expensive software stock. However, due to low gross profit margins, it doesn’t have the same profit potential as its peers and is actually much more expensive than it appears.
These are all big red flags for me, and I think BigBear.ai is a stock to avoid. The market has false expectations for BigBear.ai as a software company, and it won’t work out in the long run. There are too many great AI stocks to invest in right now, but they all represent a much bigger opportunity than BigBear.ai.
