Is BigBear.ai a Buy?

Before you jump in, it's worth weighing the hype against the fundamentals

After its stellar run, does BigBear

Ai belong in your portfolio

Here's some food for thought

Image source: Getty Images What's driving BigBear

Ai vides AI-driven software that helps organizations analyze complex data and make crucial decisions

A sizable chunk of the company's revenue comes from government contracts, although its customers also include manufacturers, healthcare viders, and life sciences companies

Working in its favor, though, is the fact that the company sits at the intersection of two hot zones in the market: AI and defense nology

Either way, it's ly that BigBear

Ai is benefiting from strong sector momentum, and there's nothing wrong with that

A short squeeze occurs when the stock price goes up, forcing short-sellers to cover their positions by purchasing s, which juices the price further

Regardless of what's really pushing the stock higher, the recent rally seems a bit disconnected from the ' fundamentals

That might seem respectable on the surface, but keep in mind that the global AI market is jected to have a compound annual growth rate (CAGR) of 36% for the next five years, according to Grand View Re

Ai isn't fitable, but there were some encouraging signs in the first quarter

Still, there are some red flags

If the company was heavily in SG&A to fuel its growth, you would expect to see stronger top-line acceleration

When evaluating a company's operating performance, it can be helpful to look at adjusted EBITDA

This metric starts with earnings before interest, taxes, depreciation, and amortization (EBITDA) and strips out one-time or noncash items such as stock-based compensation, restructuring charges, and changes in the value of investor contracts

Ai reported an adjusted EBITDA loss of nearly $7 million, compared to a $1. 6 million loss in the year-ago period

Management attributed the large spike to increased re and development spending and slower government funding that led to underutilized resources

Reasons for optimism If I could pick one key reason to consider starting a position in BigBear

Ai, it would be the CEO, Kevin McAleenan, who was appointed in January

McAleenan was acting secretary of the Department of land Security in President Donald Trump's first administration

He also co-founded AI vision vider Pangiam, which BigBear

He plans to focus on several mising segments: border security, defense, intelligence, and crucial infrastructure

Given the current geopolitical tensions and the Trump administration's emphasis on border security, the company could be in a good position to take the next step in its growth under McAleenan's leadership

It's also important to note that BigBear

Because the company isn't fitable, we can use the price-to-sales ratio (P/S) to get a sense of its stock valuation

We'll compare it to Palantir and C3

Ai, both of which have a presence in the government sector

BBAI PS Ratio data by YCharts

Based on the P/S metric, BigBear

Ai are trading at comparable valuations (although the former is slightly higher), and BigBear is trading at a deep, deep discount to Palantir

Palantir's valuation has sparked plenty of debate, but investors have shown they're willing to pay a premium for the company's explosive growth and strong momentum in the defense and commercial

In the first quarter, it reported 39% year-over-year revenue growth while closing 139 deals of at least $1 million

Ai reported 25% year-over-year revenue growth

Because of its lackluster growth and persistent losses, BigBear

Ai is a speculative bet, in my opinion

Until it ves it can accelerate growth and stabilize its fundamentals, I would stay on the sidelines

Josh Cable has positions in Palantir nologies

The Motley Fool has positions in and recommends Palantir nologies

The Motley Fool recommends C3

The Motley Fool has a disclosure policy.