BigBear.ai Leverages AI for Growth Amid Government Contract Wins

Artificial intelligence (AI) marks a significant shift in technology today. BigBear.ai (NYSE: BBAI) has tapped into this trend, boosting its share price by 136% in the last six months.

Recent government contract successes and improving financial results have piqued investor interest in this rising company. Let’s see if BigBear.ai’s stock remains a worthwhile investment or if other alternatives could provide similar exposure to this leading AI firm.

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Leadership Changes Propel Growth

On January 15, BigBear.ai appointed Kevin McAleenan as CEO. Having previously served as the company’s president, McAleenan brings a wealth of experience from both governmental and private sectors, including his role as acting secretary of the U.S. Department of Homeland Security.

His history includes co-founding Pangiam—a company BigBear acquired in 2024—and nearly twenty years in government positions. This background gives him a strong understanding of national security needs, positioning BigBear.ai to grow in defense and security markets.

Robust Financial Growth

In the third quarter of 2024, BigBear.ai reported impressive revenue growth of 22.1%, reaching $41.5 million. They also increased their gross margin to 25.9%, up from 24.7% a year earlier, thanks to more commercial solutions and better operational efficiencies.

However, the company experienced a net loss of $12.2 million compared to a net income of $4 million in Q3 2023, mainly due to non-cash changes in warrant valuations. On a positive note, BigBear.ai recorded an adjusted EBITDA of $0.9 million and maintained a strong backlog of $437 million, indicating solid future revenue prospects.

Government Contracts Boost Growth Prospects

BigBear.ai has made strides in the government sector with two major contract wins. They landed a five-year, $165 million sole-source contract with the U.S. Army to provide advanced AI-driven force management solutions, enhancing their footprint in defense technology.

Additionally, BigBear.ai obtained a subcontract through Concept Solutions on a ten-year contract related to the Federal Aviation Administration’s (FAA) IT initiatives, which features a total shared ceiling of $2.4 billion across 14 companies. This contract will allow the FAA to procure various IT services and solutions.

Considering Cautious Investment Strategies

Despite positive developments, the current valuation of 5.3 times trailing sales prompts caution, especially since peers trade at an average of 3.5 times. Investors interested in BigBear.ai while managing risk might explore a cash-secured put strategy instead of direct stock purchases.

For example, based on January 17 options pricing, an investor could sell a January 2026 put option with a $3 strike price, generating about $1.10 per share—or $110 per contract—in premium income before fees.

This option could yield a potential return of 37% over the next year, provided the stock stays above $3. However, investors should be aware of the obligation to buy 100 shares at the $3 strike price if the option is exercised. Although the premium income can offset losses, it also limits potential gains if the stock rallies significantly.

Strategic Positioning in a Competitive Market

BigBear.ai’s combination of experienced leadership, improving finances, and expanding government contracts creates a promising outlook. After the stock’s recent rise, pursuing a cash-secured put strategy may be a prudent option for managing volatility in the AI market.

This approach enables investors to collect significant premiums while controlling risk. While potential profits could be capped, this strategy can provide a cushion against downturns, making it a strategic alternative to outright stock purchases.

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*Stock Advisor returns as of January 13, 2025

George Budwell has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.