The remarkable success story of Palantir Technologies serves as a clear indicator that there is a thriving demand for artificial intelligence (AI) software designed to assist organizations in effectively leveraging their data for improved decision-making. In late 2021, BigBear.ai Holdings (NYSE: BBAI) made its debut on the public market through a merger with a special purpose acquisition company (SPAC). Unfortunately for its investors, the timing of this move could not have been worse.

Shortly after BigBear.ai went public, the stock market experienced a dramatic downturn as a bubble, previously inflated by zero-percent interest rates, burst. This resulted in a challenging environment for shareholders, with the stock facing a staggering decline of nearly 80% from its peak value due to ongoing market volatility.

The pressing question now is whether this situation represents a prime opportunity to buy the dip before the stock potentially rebounds or if the current market conditions signal a warning for investors to exercise caution.

Upon closer examination, BigBear.ai has yet to achieve the level of traction that its more established competitor, Palantir, has enjoyed. At first glance, BigBear.ai appears to be an intriguing investment; the companys software is designed to fulfill three core functions: observe, orient, and dominate. In essence, BigBear.ais solutions ingest a vast array of data, analyze it for insights, and present findings in a manner that guides decision-makers.

Specializing in various applications across government entities, supply chains, healthcare, and life sciences, BigBear.ai derives a substantial portion of its revenue from public agencies within the U.S. government. This operational model bears resemblance to Palantir, which has thrived since unveiling its AIP platform in 2023. However, with a market capitalization of only $757 million today, there remains considerable potential for growth if the company can successfully expand its business.

Yet, investors are still waiting for signs of progress. BigBear.ai reported revenue figures of approximately $155 million in 2022, maintaining the same level in 2023, and only slightly increasing to $158 million last year. Looking forward, management forecasts sales between $160 million and $180 million for 2025, suggesting that growth this year could remain nearly stagnant.

In contrast, the broader AI software sector has seen substantial revenue increases for companies like Palantir and C3.ai, its competitors. The struggles faced by BigBear.ai raise legitimate concerns regarding its operational execution and the overall value proposition of its product compared to rivals.

Moreover, financial challenges loom for BigBear.ai, casting a shadow over its future prospects. The company concluded the year 2024 with a mere $50.1 million in cash reserves. With cash losses totaling $49.2 million last year, it appears likely that management will need to seek additional funding in the near future. Additionally, the company carries approximately $200 million in long-term debt, primarily consisting of convertible bonds due in 2029. While this debt is not an immediate concern, it heightens the likelihood that the company will resort to issuing new stock to raise capital.