If You'd Invested $10,000 in BigBear.ai Stock 1 Year Ago, Here's How Much You'd Have Today

Key Points

• BigBear.ai has seen huge gains recently in conjunction with the defense AI trade becoming increasingly popular among investors.

• BigBear.ai has a growth-dependent valuation, and investors will need to see margins improve over time.

• 10 stocks we like better than BigBear.ai ›

BigBear.ai (NYSE: BBAI) stock has been on a big winning streak lately, but it's got a huge test on the near horizon. The company is set to publish its second-quarter earnings results after the market closes on Aug. 11, and the company's share price could be poised for a big move.

BigBear.ai's share price has rocketed roughly 440% higher over the last year, as of market close Aug. 6. That means that a $10,000 investment in the stock one year ago would now be worth $54,000. Expectations are running high heading into the company's upcoming quarterly report. What comes next?

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Can BigBear.ai's stock really keep going?

As a provider of artificial intelligence (AI) software and consulting services, BigBear.ai has recently seen big valuation gains as AI companies with exposure to the defense industry have become favorites on Wall Street. Artificial intelligence is having a transformative impact on a wide range of market sectors right now, and geopolitical dynamics including the war between Russia and Ukraine and tensions between the U.S. and China have encouraged investors to seek out defense AI plays.

With its last quarterly update, BigBear.ai guided for annual revenue to be between $160 million and $180 million -- representing growth of roughly 7.5% at the midpoint of the target range. Meanwhile, BigBear.ai is valued at approximately 12 times this year's expected sales and still isn't profitable.

New contract wins and excitement surrounding defense AI trades could continue to push the company's share price well above current levels, but eventually the business will need to show stronger margin improvements to please investors. For example, the business posted a gross margin of just 21.3% last quarter -- a level that's quite low for a software and services company. BigBear.ai stock could keep delivering wins for investors, but the company has some proving to do following its recent valuation gains.

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Keith Noonan 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.