Why BigBear.ai Stock Is Plummeting Today

Key Points

• BigBear.ai released its second-quarter results yesterday, and sales and earnings came in well below Wall Street's targets.

• The company also issued a large downward revision for its annual sales guidance.

• BigBear.ai missed out on government contracts that it expected to close, which raises questions about its positioning in the defense AI space.

• 10 stocks we like better than BigBear.ai ›

BigBear.ai (NYSE: BBAI) stock is getting crushed in Tuesday's trading. The company published its second-quarter results after the market closed yesterday, and investors are having a strong bearish reaction to some disappointing numbers in the report. The stock was down 26.9% as of 10:30 a.m. ET today and had been off as much as 32.9% shortly after the market opened.

BigBear.ai posted sales, and earnings came in far below Wall Street's targets, and the underperformance doesn't appear to be down to near-term contract timing. The company also lowered its full-year performance targets.

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BigBear.ai stock plunges on weak Q2 numbers

BigBear.ai stock had seen big gains in recent months as investors backed artificial intelligence (AI) plays with exposure to the defense industry, but the company's latest quarterly report has crushed bullish momentum. The software and services provider posted a loss of $0.71 per share on revenue of just $32.5 million -- a performance that came in far worse than the average Wall Street analyst estimate's target for a per-share loss of $0.06 on revenue of approximately $40.6 million.

Sales unexpectedly declined 18% year over year in the period, and the company said that it had seen federal contracts that it expected to go through not close. Unfortunately, management's new forward guidance suggests that these previously anticipated contract wins will not be arriving in the second half of the year.

What's next for BigBear.ai?

BigBear.ai previously guided for sales this year to come in between $160 million and $170 million, which would have meant delivering annual sales growth of roughly 7.5% if it hit the midpoint of the target range. With its latest update, management now expects that sales will actually wind up being between $125 million and $140 million -- suggesting an annual decline of roughly 16% at the midpoint.

BigBear.ai did close Q2 with a record cash position of $390.8 million, so it has resources that it can use to help the business return to growth, but the big government contract misses are concerning. With Palantir and other defense AI companies recently seeing strong momentum with government contracts, BigBear.ai's recent shortfalls raise some questions about whether it's a credible player in the space.

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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Palantir Technologies. The Motley Fool has a disclosure policy.