Could BigBear.ai Become the Next Lumen Technologies?

Lumen Technologies was one of the greatest comeback stories of 2024. The struggling telecom company’s stock had dropped below $1 this June as investors fretted over the slow death of its business wireline segment. But it skyrocketed back to about $6 over the past four months as it secured several major AI deals.

Microsoft mainly saved Lumen, which awarded it an artificial intelligence (AI) connectivity contract to upgrade Azure’s cloud infrastructure. By early August, Lumen said it had secured $5 billion in new business related to the AI connectivity market and was in “active discussions” to “secure another $7 billion in sales opportunities.”

It expects the initial payments from those contracts to boost its free cash flow (FCF) to a positive range of $1 billion to $1.2 billion in 2024.

Image source: Getty Images.

That cash infusion pulled Lumen back from the brink of bankruptcy, but it’s still unclear if it can generate enough revenue from its AI-related contracts fast enough to offset the secular decline of its non-AI business wireline market. Although it’s still to be determined whether Lumen’s turnaround is long-term, the near-term change is undoubtedly something for companies in a similar position to aspire to.

So, instead of wondering if Lumen can pull off its AI-driven recovery, investors might want to look for other fallen tech stocks that the secular growth of the AI market might save. Could one of those stocks be BigBear.ai (BBAI -2.45%), the enterprise AI software company that went public by merging with a special purpose acquisition company (SPAC) in 2021?

What does BigBear.ai do?

BigBear.ai develops data mining and analytics tools that aggregate data from disparate sources to help its clients make faster and more informed decisions. It differentiates itself from other data-mining platforms in two ways: It provides its services as smaller modules that can be plugged into a client’s existing software infrastructure, and it mainly runs its services on edge networks instead of core networks.

Those niche strategies sounded promising, and the company seemed well-positioned to profit from the secular growth of the edge networking, analytics, and AI markets. But like many other SPAC-backed AI start-ups, BigBear.ai set some unrealistic growth targets during its pre-merger presentation and missed those estimates by a mile.

Data source: BigBear.ai.

BigBear.ai blamed that disappointing growth on macro headwinds; competitive challenges; and the bankruptcy of its major customer, Virgin Orbit, in 2023. As its growth stalled out, its CEO Reggie Brothers unexpectedly stepped down in October 2022.

Brothers’ successor, Mandy Long, tried to grow BigBear.ai’s revenue again by executing an all-stock takeover of the AI vision technology firm Pangiam this year and securing a new streak of government contracts. The company also aggressively reined in its spending to bring its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) and cash flows back to positive levels in the second half of 2023.

For 2024, BigBear.ai expects its revenue to increase anywhere from 6% to 16%, to a range of $165 million to $180 million. Analysts expect revenue to rise 11% to $172 million, but they still foresee its adjusted EBITDA coming in at negative $7 million. For 2025, they forecast its revenue to rise 14% to $196 million with a negative adjusted EBITDA of $2 million.

Those growth rates are tepid, but BigBear.ai’s enterprise value of $537 million looks pretty cheap at three times this year’s sales. Its insiders have also bought more than twice as many shares as they sold over the past 12 months.

But BigBear.ai probably won’t replicate Lumen’s recent gains

BigBear.ai’s stock is trading nearly 90% below its all-time high, but it probably won’t experience a multibagger recovery like Lumen for three simple reasons.

First, it’s not yet big enough to attract the attention of a major customer like Microsoft for sweeping AI infrastructure upgrades. It recently secured more government contracts and data-sharing partnerships with Amazon Web Services (AWS) and Palantir Technologies, but those deals barely boost its near-term revenue.

Second, BigBear.ai won’t attract much attention as long as it’s growing slower than its larger competitors in the data mining and AI market. By comparison, analysts expect Palantir’s revenue to rise 24% in 2024 and 21% in 2025 — and it’s already consistently profitable based on generally accepted accounting principles (GAAP).

And third, Lumen shrewdly turned lemons into lemonade by attracting new AI connectivity customers to its slow-growth business wireline division. BigBear.ai also seems to be holding a lot of lemons — since it would have barely grown without its acquisition of Pangiam this year — but it doesn’t seem to have many ways to squeeze them into lemonade yet.

BigBear.ai might be an interesting turnaround play for speculative investors, but I doubt it will generate an explosive return in just a few months like Lumen has. It still needs to prove its business model is sustainable and that it can keep growing in the shadow of larger AI companies like Palantir and tech titans like Amazon.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Leo Sun has positions in Amazon. The Motley Fool has positions in and recommends Amazon, Microsoft, and Palantir Technologies. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.