BigBear.ai (BBAI) ended 2024 on a hot streak thanks to a series of big-ticket government contracts. But now, with Elon Musk’s DOGE slashing federal budgets, the company’s outlook is far less certain.
BigBear.ai positions itself as a “leading provider of AI-powered decision intelligence solutions for defense and national security.” It's in a unique position because Its CEO Kevin McAleenan is a former Acting Secretary of Homeland Security, giving BBAI closer access to Washington.
Despite DOGE cuts, BigBear.ai is still locking in deals. The company announced on Monday that it has secured a $13.2 million contract with the U.S. Department of Defense (DoD).
The question is how much longer government contracts will remain a viable growth strategy.
The company scored multiple DoD contracts last year, along with a deal from the Federal Aviation Administration (FAA). Its stock jumped 35% in August after landing the FAA contract.
But both agencies have already seen their budgets slashed by DOGE, and the DoD plans to cut 8% of its budget every year for the next five years.
The company acknowledged these risks in its Q4 earnings release, warning about a possible shift in government spending priorities.
“If a U.S. government shutdown occurs in 2025, or if there’s a substantial shift in national security priorities, BigBear.ai would review its guidance as part of prudent financial planning and its efforts to build a long-term sustainable business,” the company said in a statement.
BigBear.ai isn’t the only AI-driven defense contractor feeling the pressure from government spending cuts.
Shares of Palantir (PLTR) — a top software provider for U.S. defense agencies — dropped 12.5% when news of the DoD’s planned cuts broke.
Poor guidance spooked investors
BigBear.ai remains unprofitable, and its Q4 earnings did little to convince investors that profitability is on the horizon.
Analysts expected a loss of $0.14 per share on $54.6 million in revenue — but the company missed badly, posting a $0.43 per-share loss on just $43.8 million in sales.
While revenue grew 8% year-over-year, research and development costs jumped 15%, and selling, general, and administrative expenses surged 21%.
At this rate, BigBear.ai will need far more than 8% revenue growth to reach profitability.
Investors reacted harshly, sending the stock down 25% after earnings — and it’s now off more than 35% since mid-February.
TD Ameritrade Senior Markets Contributor George Tsilis told Schwab Network that the market has no patience for unprofitable growth stocks right now.
“The problem for BBAI is that there’s no appetite for growth stocks that aren’t turning a profit. Investors are shifting focus to fundamentals,” Tsilis said.
However, he does see one major opportunity for BigBear.ai: “Border security is essentially where this company’s revenue stream is focused,” Tsilis said, pointing to the Trump administration’s push to secure the U.S. border.
For BigBear.ai, that may be its best shot at a turnaround — if the government keeps spending.
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