Analyst Upgrade Shows Over Double Bagger Potential for BigBear.ai

Key Points

• BigBear.ai received a huge price target upgrade from a Wall Street analyst.
• The AI-driven company's focus on militaries and governments warrants some comparison to Palantir Technologies.
• 2025 is a big year for BigBear.ai to put-up or shut-up.

BigBear.ai NYSE: BBAI is a small stock looking to establish itself as the next big thing in the world of artificial intelligence. The company finds similarities to one of the market's AI darlings, Palantir Technologies NASDAQ: PLTR. Both companies target the military and governments, looking to arm them with AI-driven analytics.

Since noting the company as an AI stock to watch in 2025, shares are up a modest 5%. However, in the past week, shares got killed, as did the overall market. The S&P 500 Index is down over 2% from Jan 6. to the Jan 13. close. Meanwhile, shares of BigBear.ai have plummeted approximately 30%. This shouldn’t come as a massive shock. Small companies, especially in tech, get hit harder when the market declines. As another reference point, Palantir has lost 15% of its value during this period.

On a much more positive note, BigBear.ai recently received a huge upgrade from one Wall Street analyst. HC Wainwright increased its price target on the company to $7 per share, more than double its previous $3 target. This implies a 135% upside from the Jan. 13 closing price. Below, I’ll detail what I’m paying attention to around BigBear.ai as 2025 is now in full swing.

Overview of BigBear.ai’s Business

BigBear.ai’s business targets three markets: national security, supply chain management, and digital identity. In terms of national security, one of its main goals is to help support operational readiness. It uses its analytics to predict events that might occur and create recommendations for managing risk. This includes helping leaders allocate troops and equipment across vast, protected territories.

It also works in vision AI, which allows computers to identify images. Facial recognition and advanced biometrics are two key functions that this technology offers. The Denver International Airport uses the company’s biometric technology.

BigBear’s Growth, Recent Developments, and Comparison versus Palantir

Last quarter, BigBear.ai increased revenues by a solid clip of 22%. It also highlighted that the U.S. Army awarded it a “five-year production contract valued at $165 million, beginning in Q4 2024.” However, a closer look isn’t as favorable. BigBear’s last-12-months revenues are flat compared to Q3 2023. It also didn’t raise its Q4 revenue guidance despite this new deal being set to begin.

One reason for this could be the nature of BigBear’s business, which it describes as "lumpy." This implies revenues will tend to come in irregular waves. The company’s significant reliance on government revenues contributes to this. These contracts tend to be project-based, where payment comes after the completion of a key milestone rather than in even payments over the contract term.

BigBear attributes the lumpiness to "the cautious approach of governments and regulators toward AI." However, it is hard to say that this argument really rings true. Over the course of 2024, Palantir saw large and accelerating revenues generated from governments. Over the last 12 months, the company has generated over $1.4 billion from governments. U.S. government revenue grew by 40% last quarter.

Revenue from international governments increased by 33% last quarter and was around $88 million. This shows strong AI demand from various governments, not just the U.S. In comparison to Palantir, BigBear's flat revenues indicate that governments aren’t particularly cautious when it comes to AI; they just aren’t sending their demand to BigBear. Also, revenues have not been very lumpy. They have hovered near $40 million almost every quarter since Q3 2022.

What’s Next for BigBear.ai

Given BigBear’s lack of increasing revenues that sit in stark contrast to Palantir, it remains a company to watch in 2025. It will be important to see what kind of full-year 2025 revenue guidance the company provides in March. The five-year $165 million deal indicates an extra $33 million in revenue per year.

However, the payments likely won't be even. The company may also provide revenue guidance over its 2024 revenue due to the announcement of its U.S. General Services Administration’s OASIS+ contract.

The award includes 75 Contract Line Item Numbers (CLINs) across a broad range of use cases. This suggests there are a plethora of products the government might now purchase from the firm and that the company could significantly expand revenues. Still, there are nearly 600 companies part of this contract, indicating fierce competition.

Although new government contracts are good to see, the proof is in the revenue. Indicating significant revenue growth in its full-year 2025 guidance would be a great sign. If that occurs, it would be easier to get behind HC Wainwright's ambitious price target.