BigBear.ai (BBAI): Navigating Headwinds in the Government AI Sector

From SPAC Boom to Reality Check

BigBear.ai burst onto public markets four years ago through a SPAC merger at $9.84 per share, riding high on ambitious growth projections. The company promised to grow revenue from $182 million (2021) to $550 million (2024). Reality, however, told a different story. By 2024, the stock had cratered to just $6, and actual revenue only inched up from $146 million to $158 million—a far cry from the forecasted trajectory.

The gap between promise and performance reveals the challenges facing specialized AI firms targeting government contracts. BigBear.ai’s core business—AI modules that process data on edge networks for mission-critical applications—seemed perfectly positioned for defense and national security spending. Yet execution proved far more complicated.

Strategic Pivots and Leadership Transitions

The company has cycled through three CEOs since going public, a red flag for any investor. The latest shift came in January 2025 when Kevin McAleenan, former Acting Secretary of the Department of Homeland Security, took the helm following BigBear.ai’s acquisition of Pangiam, a biometric identity solutions firm.

Under McAleenan’s leadership, BigBear.ai has secured new DHS digital identity initiatives and U.S. military modernization projects. On paper, these wins suggest strong government tailwinds. Yet they come with significant caveats: most contracts lock in fixed pricing with limited renegotiation flexibility and distribute revenue over multiple years.

To accelerate growth, BigBear.ai deployed an aggressive acquisition strategy. In December, it purchased Ask Sage, a generative AI platform for government and commercial clients, for $250 million in cash. This move signals that organic growth has stalled—the company is increasingly reliant on bolt-on acquisitions to expand its addressable market.

Financial Deterioration and Margin Compression

The numbers paint a sobering picture. For 2025, BigBear.ai projects revenue will decline 11-21% to $125-$140 million, weighed down by disruptions in Army contracts while the federal government consolidates its data infrastructure. Analysts forecast a 16% revenue decline to $134 million.

Profitability metrics have deteriorated sharply. Gross margins contracted 240 basis points year-over-year through the first nine months of 2025, dropping to 22.8%. More concerning, adjusted EBITDA margins plummeted from negative 3.8% to negative 24.8% during the same period. The company expects a full-year adjusted EBITDA loss of $33 million—far worse than the $2 million loss in 2024.

The company’s backlog—a key indicator of future demand—actually shrank from $385 million (Q1) to $376 million (Q3), suggesting limited pipeline momentum.

The Path to Profitability Remains Uncertain

Analysts project 2026 revenue growth of 23% to $164 million, with adjusted EBITDA improving to negative $15 million. However, this growth almost entirely depends on Ask Sage’s contribution. By 2027, revenue could decline 2% to $162 million as that acquisition cycles through the numbers, with adjusted EBITDA approaching breakeven.

These projections assume successful integration of acquired businesses and stable government spending—neither guaranteed. Additionally, BigBear.ai has more than tripled its share count since the SPAC merger, meaning significant dilution has already occurred and likely will continue as the company burns cash.

Valuation Concerns and Investment Thesis

With an enterprise value of $2.4 billion against projected 2026 sales of $164 million, BigBear.ai trades at roughly 14 times forward sales. For a company still unprofitable, facing margin compression, and dependent on government contracts, this valuation offers limited margin of safety.

The Ask Sage acquisition may boost near-term revenue visibility, but structural challenges remain unresolved. BigBear.ai must demonstrate it can stabilize its core business, capture larger government contracts, grow its commercial customer base, and restore margin expansion before becoming an attractive investment.

Until the company shows measurable progress on these fronts, the risk-reward profile remains unfavorable for most investors. The combination of revenue headwinds, margin deterioration, and reliance on acquisition-driven growth suggests caution is warranted in 2025.