Summary

• BigBear.ai's stock surged over 100% due to a Department of Defense deal, but it’s driven by speculation and may decline.

• BBAI is similar to Palantir but lacks profitability and a compelling product portfolio, making it a risky investment.

• The stock is overvalued and overbought; a favorable entry point might be around $5, supported by technical indicators.

• While BBAI has potential, I recommend waiting for the hype to die down and the price to retrace before investing.

Thesis Summary

BigBear.ai Holdings, Inc. has seen its stock skyrocket in the last week, following a deal with the Department of Defense and also perhaps riding on the momentum of Palantir Technologies Inc.s' (PLTR) earnings.

BBAI is, in many ways, similar to Palantir, and this may give investors the impression that it could be the next Palantir.

Add to this the fact that there’s over 20% short interest, and you have the recipe for a GameStop Corp. (GME) worthy squeeze.

But is this really an investment or trade worth taking?

In my opinion, BBAI is fueled by speculation right now, and the share price will eventually come down.

Still, this is an interesting business with potential, so I'll suggest some potentially interesting entry points.

What Does BigBear.ai do?

Like Palantir, BigBear.ai is in the field of data analytics and AI. More specifically, the company provides different forms of predictive analytic technology. This can be used for Defense applications, but also within the Enterprise segment to optimize operations.

BBAI also uses simulation and digital twin technology, which aims to create digital replications of the real world to run simulations.

And like Palantir, its customers include government agencies and private enterprises. In 2023, government agencies accounted for around 32.5% of revenues.

The company went public through a SPAC back in 2021, and the stock price plummeted.

In the last week, however, the stock has rallied over 100% following the announcement that it has been awarded a contract by the Department of Defense to keep advancing its Virtual Anticipation Network (VANE).

While the news is certainly positive, and it follows another contract announcement with the Navy, it seems like the stock might have gotten ahead of itself.

Could BigBear Really Be The Next Palantir?

Being in a very similar space to Palantir, these two stocks actually hold a strong correlation.

PLTR vs BBAI

In a way, BBAI trades like a levered Palantir proxy. The stock is incredibly volatile and prone to large upswings, which are likely fueled by short covering since the short interest is over 20%.

But is there any real fundamental reason to invest, rather than trade BBAI?

We’ve listed the similarities with Palantir already, but there are also some key differences.

Size & Scale

Palantir brought in over $2.8 billion in annual revenues in 2024, while BigBear had revenues of $165 million. The size itself isn’t really that important, but it provides evidence for the next point.

Proven Product

Palantir has a robust product portfolio; Gotham, Foundry and now also AIP, which has taken the commercial enterprise market by storm.

Meanwhile, BBAI has a pretty general-purpose intelligence platform. It’s difficult to see a compelling use case that sets it apart from the competition, like, for example, Palantir’s ontology.

Profitability & Cash Flow

Furthermore, Palantir has shown positive free cash flow every quarter since 2022 and a positive EPS for the last year.

BBAI, on the other hand, is still operating at a loss, and will likely dilute shareholders in the future.

BBAI income staement

To sum up, I’d say it takes a big leap of faith to compare BBAI to Palantir. The company lacks the two most significant things which, in my opinion, have led to Palantir’s massive rally: Profitability and AIP, which targets the commercial enterprise segment.

Technical Outlook

It’s very early to tell what will happen with BBAI. I don’t believe there’s enough evidence to suggest it’s the next Palantir. Following the recent rally, the stock is overvalued and overbought, but we could find a favorable entry point.

BBAI TA

We’ve seen this story play out before, with a short squeeze back in January 2023 and another more recently in March 2024.

The RSI is overbought on the daily, and we’re also approaching a previous area of trade around the psychological $10 mark.

In my opinion, BBAI will sell off from here. I might be interested in picking up some shares around the $5 area, where the 61.8% retracement of this rally hits. There’s also a lot of volume to support them, as well as support from the 20-day EMA.

At $5, BBAI would be trading again at a more reasonable PS of 6, though valuation metrics are difficult to apply to a company like this.

Final Thoughts

While I can see the temptation to buy into this rally, I believe that the stock will eventually come back down, as it has in the past. While the company has shown some improvements, there are no real fundamentals supporting this move. BBAI could one day stand toe to toe with Palantir, but if you want to speculate on that, I’d wait until the hype dies down and the price retraces.