Could the Stargate Project Help Send BigBear.ai Stock Soaring This Year?
Spending on artificial intelligence (AI) has been heating up recently, and it may not necessarily be slowing down. The Stargate project, a new joint venture announced in January, will involve multiple companies -- OpenAI, Oracle, and SoftBank -- investing hundreds of billions of dollars to help build data centers and infrastructure needed for AI.
But what could that mean for a smaller AI company, such as BigBear.ai (NYSE: BBAI)? Could it stand to benefit from these developments, and will this be a potential catalyst that helps the stock rally this year?
Although BigBear.ai isn't one of the key companies involved in Stargate, nor does it sell AI-related infrastructure, it can still benefit from the project. That's because setting up the infrastructure to be ready for next-gen technologies and for deploying AI models can be an important first step for businesses looking to offer AI-powered products and services. And BigBear can help them along that path.
BigBear's decision intelligence solutions can help companies as they make complex decisions, including those related to AI. Its solutions assist companies in various industries, whether they are offering AI products and services or not. While there may not be a direct link and way that the company will benefit from the new Stargate venture, it can indirectly benefit from President Trump announcing the deal, putting more of a focus on AI and highlighting the importance of investments into that area of tech.
Investors were certainly bullish on the news, as the day of the Stargate announcement, BigBear's stock hit an intraday high of $4.82 -- an increase of more than 9% from the previous day's close. If nothing else, with BigBear being an emerging AI stock, it may still see a rise in its share price from greater excitement in AI as a whole.
What's promising about BigBear's business is that it's growing at a reasonably fast rate and still locking up deals that can lead to more growth in the future. In its most recent quarter, which ended on Sept. 30, the company's revenue grew by more than 22% to $41.5 million. And it also recently announced a five-year contract with the U.S. Army worth $165 million.
There's a lot of potential for the business, but investors shouldn't overlook BigBear's lack of profitability. Last quarter, it incurred a net loss of $12.2 million, and over the past three quarters, its losses have totaled $149.1 million. The company's gross margins are fairly light at around 25% of revenue, which means that its selling expenses and overhead will need to be lean for the business to turn a profit. But with selling, general, and admin expenses alone coming in higher than its gross profit in recent periods, it won't be an easy path for BigBear to get to breakeven anytime soon.
