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$BigBear.ai Holdings(BBAI)$

The AI Stock Hype: Big Bear AI (BBAI) Promises Riches but Lacks Substance

Artificial intelligence stocks are making waves in the market, promising a future of wealth, revolution, and innovation. But what if I told you one of the hottest AI stocks, Big Bear AI (BBAI), is all hype and no substance? With flatlining revenues, broken promises, and CEOs constantly changing roles, the truth behind this overhyped stock might surprise you and could have major implications for your portfolio.

The Motley Fool's Misleading Praise of Big Bear AI

You’ve probably heard the buzz around BBAI, with some people praising it. But as the saying goes, "A fool and his money are easily parted." This is evident in the countless articles praising BBAI, like those from The Motley Fool, claiming it could be the next big thing in AI. One even asked, “Could investing $20,000 in Big Bear AI make you a millionaire?” But let’s be clear—this is utter nonsense. While they talk about AI pioneers like Big Bear AI and Palantir, the reality is far different. One article even suggests there are “10 stocks we like better than Big Bear AI.” So, which is it—should you buy and hold BBAI forever, or is there something better out there?

Lack of Financial Expertise Behind Big Bear AI Endorsements

Looking at the writer behind these claims, it’s clear they lack experience in the financial industry and shouldn’t be making such bold statements about a company with significant red flags. We've previously pointed out concerns about Big Bear AI, warning investors as early as April 2023 in a video titled "Bearish on Big Bear AI." As we said back then, if you're seeking AI analytics with heavy government exposure and can tolerate questionable management, BBAI might seem appealing. However, since then, Palantir’s stock has risen 950%, while the QQQ (NASDAQ) has grown 51%, and BBAI has only climbed 33%. This confirms our earlier caution—Big Bear AI is not a solid long-term investment, despite what some enthusiasts claim.

Holding Big Bear AI Management Accountable for Their Failures

A key point we made was the need to hold management accountable for their promises. We also stated we wouldn't touch this company with a 10-foot pole—and that still holds true. So, what’s the real story behind Big Bear AI? According to their SPAC filing... well, you guessed it—it’s a SPAC.

Overpromising and Underdelivering on Growth Projections

Big Bear AI promised a 40% compound annual growth rate, but the reality has been far from that. What's interesting is that many SPACs debuted in 2021, and now, in 2025, we can look back at the projections they made four years ago to assess their performance. Initially, the company projected $764 million in revenues for this year, with 75% of that coming from analytics, which was supposed to lead them to profitability due to its higher gross margins compared to their other segments, like cyber and engineering. However, they are now expecting just $170 million at best, and even that seems unlikely. Analytics revenue, once a major focus, is no longer discussed, essentially swept under the rug alongside those overly ambitious projections that were never met. Furthermore, a positive EBITD margin is nowhere to be seen.

Questionable Financial Metrics and Deceptive Reporting

Looking at their latest shareholder letter, they’ve conveniently highlighted certain metrics, but there’s a sense that they’re masking the truth. For example, they show a 2% revenue increase from 2023 to 2024, presented as if it’s a significant improvement, when in reality, it's a minimal gain. They also mention goodwill impairment, likely stemming from their acquisition of another company, but it raises serious questions about the true value of that acquisition and whether it added any meaningful synergies. This goodwill impairment suggests that they miscalculated the potential benefits of the acquisition, which could be indicative of poor judgment when it comes to growth strategies.

Flatlining Revenues Despite the AI Boom

AI is disrupting nearly every industry right now, and if you're an AI company in this peak hype phase, you should be showing strong revenue growth. So why is Big Bear AI's revenue still stagnant? This company has been around since 1988—so why aren’t we seeing growth? Instead, they're reporting flatlining revenues with projections that don't inspire confidence for the next year. Their margin issues are adding to the concern, especially given their historical inability to deliver on growth expectations.

Margin Issues and Unrealized Potential

One of the major red flags for Big Bear AI is its gross margins. In their SPAC deck, they stated that their margins were around 30% and expected to increase toward 70% as they transitioned more into the software space, which would allow them to command higher margins. However, their gross margins remain well below 30%, which is troubling. This leaves little room for them to eventually achieve profitability. While there was a recent spike closer to 40% in their quarterly margins, it remains unclear whether this increase is a result of a higher concentration of analytics revenue, as the company no longer breaks down its two business segments. The company had projected a blended gross margin of at least 50% by 2025, but they are nowhere near that target now. The bottom line is that Big Bear AI is not a SaaS company, and its profitability remains a distant goal.

Big Bear AI is Not a SaaS Company

Big Bear AI does not operate like a typical SaaS company, as they lack key SaaS metrics and detailed revenue breakdowns. Their reliance on traditional contracts, such as time and materials and firm-fixed-price agreements, is concerning. These types of contracts are risky because if there are cost overruns, they come out of the company’s pocket. Additionally, the cost-reimbursable contracts don’t align with the high-margin, scalable nature of SaaS businesses, making it clear that Big Bear is far from being a SaaS firm.

Customer Concentration Risk

A significant concern for Big Bear AI is its customer concentration, with around 60% of their revenue coming from just four clients. This is problematic because losing one of these customers could result in a substantial revenue loss, further destabilizing the company.

CEO Turnover and Leadership Instability

Big Bear AI’s leadership is in constant flux, as the company has seen its third CEO since going public. This instability could indicate underlying issues within the C-suite, such as conflicts or poor leadership choices. The new CEO comes from a company called Pangium, and the press release regarding the Pangium acquisition in March of last year projected a revenue range of $195 million to $215 million. However, they missed that target by 23%, which raises questions about either the quality of the acquisition or organic issues within the business. In either case, the management’s track record of unmet projections raises serious trust concerns.

Track Record of Missed Revenue Targets

Big Bear AI has a history of missing its revenue projections. In 2022, they missed their midpoint by 18%, in 2023 by 5%, and in 2024 by 23%. Now, for 2025, they are forecasting revenues between $160 million and $180 million. Given their history, it’s hard to trust that they will hit their target this time. Despite claims of leveraging cutting-edge AI, machine learning, and computer vision since 1988, Big Bear AI has failed to demonstrate revenue growth that matches its technological ambitions.

Shareholder Dilution: A Hidden Danger

While Big Bear AI continues to talk about its potential and advancements, shareholders are quietly being diluted. As of the end of 2023, there were 150 million shares outstanding, but by the end of 2024, that number is expected to rise to 250 million—a 68% increase. This dilution is a major concern for investors. If you held shares worth $10 at the end of 2023, those shares would only be worth about $6 by the end of 2024, assuming no other factors change. This silent dilution is a significant issue that many retail investors may overlook.

Big Bear AI and Government Spending Challenges

Big Bear AI rightly points out a potential issue in their investor letter regarding disruptions in federal contracts. They highlight that delays or disruptions in federal contracts are likely in the short to mid-term, particularly given the new administration and changes within the Department of Defense. This is an important point because it affects not only Big Bear but all businesses supplying the federal government. As we’ve consistently mentioned, the $694 billion allocated by the federal government for contracts involving goods and services will create challenges for firms. While the long-term impact is still unclear, we anticipate earnings calls to reveal some surprises due to a lag in these developments.

Big Bear AI's Valuation: Not Overvalued, but Is It Justified?

When assessing Big Bear AI’s stock valuation, it’s interesting to note that, for now, the company does not seem overvalued. We use a simple valuation ratio to evaluate stocks, which is the market cap divided by annualized revenues, similar to a price-to-sales ratio. For our Tech stock catalog, the average ratio is about 5.8, which we calculate monthly. Looking at a company like Palantir, with a ratio around 65, it's clear that it's significantly overvalued. Anything priced three times above the catalog average, like Palantir, isn’t worth investing in. Big Bear AI, however, has a ratio of 6, which isn't drastically high compared to others in the market. That said, you’d still question whether they truly merit that valuation, especially considering their lack of growth.

The Lack of Growth Justifies a Lower Valuation

Big Bear AI doesn’t demonstrate growth in revenues, which is a major concern for a company that’s supposed to be a cutting-edge AI player. Their recent acquisition, meant to boost growth, hasn’t delivered as expected. Based on their stagnant performance, the current valuation feels unjustified. While the company isn't overvalued at this moment, it also doesn’t make sense for them to be priced at the average market level given their lack of growth.

AI Companies Need Growth to Justify Premium Valuations

In conclusion, companies with premium valuations are typically those with significant growth potential. For example, Palantir expects 30% growth this year, which, while not as impressive as OpenAI, is notable for a company of its size. AI companies, especially those like Palantir, should be experiencing peak growth to justify premium valuations. While hype and cheerleaders often pump stocks like Big Bear AI, we believe this is not a company worth investing in. When investing, you should focus on companies with growth, not just on stocks that are riding the hype. Another example of a hyped AI stock that recently crashed is SoundHound, which I warned about previously. The same principle applies—invest in companies with strong fundamentals, not speculative stocks. Thank you for reading today’s analysis.

Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.

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