BigBear.ai: A Short-Squeeze Is Possible, a Sharp Drop Is Likely

Key Points

• BigBear.ai's stock price action suggests a short squeeze is possible; short interest is high and rising, at nearly 20% as of mid-April.
• Analysts and institutions appear bullish, but their support is dubious, and no reason to buy this stock. 
• Dilution is a threat that can't be ignored.

BigBear.ai NYSE: BBAI could be setting up for a short-squeeze. The technicals show support levels rising in the face of strengthening short positions and a growing potential for increasing share prices. However, numerous factors in play suggest otherwise and have this market set up to move lower in 2025.

Those include tepid sell-side interest, institutions and analysts, tepid results, and the threat of dilution. Here’s a look at what’s driving BigBear.ai in Q2 and what investors should expect by year’s end. 

BigBear.ai: Short-interest Is High and Rising

BigBear.ai’s short interest in mid-April was down from the peaks set earlier in 2025 but up nearly 10% from the prior report and sufficiently high to cause concern. The market is 20% short and unlikely to change given the other factors. Institutions, a critical factor for any stock, are buying and could trigger a short squeeze, but are unlikely to do so given the amount of stock they own, which is only 7.5%, and the buying pace. 

Likewise, analysts are bullish on this stock, rating it a Moderate Buy with a bullish bias, but they do not provide a catalyst for buying in 2025. The trend in 2025 is downgrades and price target reductions, which have this stock trading at the low end of the range. The market is unlikely to advance in this scenario and is likely to remain at current levels, if not move lower. 

What is BigBear.ai? It is a data-centric AI services provider. Its tools manage and analyze data for corporations, entities, and governments, providing actionable insights. Its business is growing, but the results in 2024 were spotty, tepid, and below forecasts, despite the strengths shown by competitors. 

Names like Palantir NASDAQ: PLTR, Snowflake NYSE: SNOW, Oracle NYSE: ORCL, and Microsoft NASDAQ: MSFT provide similar services across verticals and to governments, and they are growing at more robust rates with stronger pipelines. 

BigBear.ai Repositions Balance Sheet, Reduces Debt; Shareholders Foot the Bill

BigBear.ai made significant changes to its balance sheet, repositioning and reducing debt, increasing assets, and improving the deficit, but it came at a cost. Reduced debt is primarily dilutive, as it involves the conversion of notes and warrants that increased the share count by 56% on average for the year and 59% for Q4.

The cash and receivables balance is up, so the business is capitalized, but only for so long, given the negative cash flow of four or five quarters at best. That means investors can expect to see debt and dilution increase unless there is a significant change in revenue. 

Catalysts for BigBear.ai include a lean into diversification and an expectation for increased government spending in 2025. President Trump has pledged a 12% increase in defense spending, including automated threat detection and defense systems. The question is whether BigBear.ai will be a big recipient of the increase, or if its larger, better-established competitors will prevail. 

The Technical Outlook: BigBear.ai Is Capped at Technical Resistance at the End of April

The technical outlook for BigBear.ai has some positive aspects, including an upward movement in support from $1.50 in November 2024 to $2.50 in April 2025. However, the negative factors outweigh these. Those include significant resistance in the $3.75 range established in 2022 when news lows were set and confirmed in 2023, 2024, and again earlier this year. 

With this in play, a move higher is unlikely, and the late April price actions align with that outlook. Investors should be prepared for this market to move lower in May and potentially through the end of the quarter, with targets at $2.50 and $1.50.