Why BigBear.ai's Impressive Backlog Comes With a Big Asterisk

BigBear.ai Holdings (NYSE: BBAI) has been a popular artificial intelligence (AI) stock for retail investors over the past year. During that time frame, the stock has risen by more than 370% (returns as of June 27). The company has been securing contracts and adding to its backlog.

While its results haven't looked all that impressive, growth investors have often pointed to the backlog as a sign of the strong demand for its AI-powered solutions, which include cybersecurity, predictive intelligence, and digital identity management.

Although that backlog has been growing, here's why you may want to take a closer look at it before buying the stock.

Image source: Getty Images.

BigBear's backlog isn't a guarantee of future revenue

BigBear's backlog is an estimate of how much the dollar value of its contracts is worth, of which it hasn't yet done the work. It can give investors a good indication of future growth opportunities and just how much business it is winning.

Here's a breakdown of BigBear's backlog from its most recent quarterly filing, which was for the period ended March 31.

Source: Company filings. Figures in thousands.

The total backlog was just under $385 million. However, the bulk of that was unexercised options. Between priced and unpriced amounts, that totals nearly $295 million, or 77% of the company's entire backlog. Unexercised options relate to the company's "existing contracts if our customer elects to exercise all of the options available in the contract." As the name suggests, these are options based on the customer's discretion.

Another significant line item is the unfunded backlog. This represents contract values "for which funding has not been appropriated or otherwise authorized." The funded backlog is the item that represents contracts where "funding is appropriated or otherwise authorized." This is the most solid and secure backlog, but it unfortunately accounts for just 5% of the total.

The majority of the company's revenue and contracts are also from federal government contracts. Not only can this involve a lengthy approval process, but that also means federal budgets will inevitably play a big role in determining just how much of BigBear's backlog, particularly to do with unexercised options and underfunded amounts, will be realized.

Investors should focus on financials, not backlog

While it's a great sign that BigBear.ai is securing government contracts and adding to its backlog, relying on that may not be a good idea for investors, as it may not end up materializing or resulting in strong future growth. BigBear's growth has been limited in recent years. The company's revenue in 2024 totaled $158 million and rose by just 2%. And the year before that, its top line was flat.

The company is anticipating a better year for 2025, with revenue ranging from $160 million to $180 million. The top end of that guidance would imply a growth rate of 14%, but that still isn't terribly exciting for an AI stock. And the worst-case scenario could see its growth rate remain in the low single digits.

Then there's also the issue of its mounting losses. Over the trailing 12 months, BigBear.ai has incurred a loss of around $230 million. Based on fundamentals, its operations simply haven't looked impressive.

BigBear is a risky and volatile stock to buy

BigBear is sometimes seen as the next Palantir Technologies, a top data analytics company involved with AI, which has secured many government contracts. But BigBear isn't profitable, growth has been lackluster, and its future is much more doubtful than Palantir's.

The danger investors can make is in assuming that BigBear will follow a trajectory similar to Palantir's. The reality is that BigBear is a far riskier stock to own. While Palantir may be overvalued, BigBear is not only overvalued, but it's also highly unprofitable, and hasn't shown much growth.

It may be tempting to want to buy BigBear shares in the hope the AI stock becomes the next Palantir, but for investors, the safest option may be to hold off on BigBear. This is a highly risky business that still has a lot to prove.

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David Jagielski 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.