Time for another big-bluster teaser pitch from Nomi Prins, who’s selling her Rogue Strategic Trader ($1,500 for two years, no refunds) with a pitch for a “26 cent AI stock.”

She didn’t make a transcript of her “AI Ultimatum” teaser pitch available just yet, so we’re left with clues gathered from the (interminable) presentation, as well as the little tidbits dropped on the order form and in her emails… so we’ll be pretty quick today.

This is from the email:

“The ‘Sears vs. Amazon’ Moment for AI Is Now

“The 1990s and 2000s were times of growth and innovation for the retail industry.

“Investments in technology and e-commerce enabled retailers to monitor inventory and customer behavior more effectively.

“They also fundamentally transformed the industry.

“And yet, you could have lost your shirt by following the crowd into the wrong names.

“Sears and Amazon illustrate this perfectly. Sears was a powerhouse, but it failed to adapt and went out of business. Amazon made a bet on the right trend at the right time, and it’s now a $1.1 trillion business.

“And today, the race is on again. Except this time, companies face a new existential threat: AI.”

And what are we told about the specific stock?

“It’s a micro-cap that’s trading for only about $0.26.”

Then, on the order form:

“Get the name and special ticker symbol of the tiny AI company that could skyrocket as soon as 5 pm ET today.

“The United States is in a race for AI supremacy. The final installment of a lucrative AI government contract is set to go live. And this tiny firm is at the center of it.

“They already won the first two contract phases… in the process beating IBM, CBI, Palantir, and Deloitte – companies up to 537 times bigger, by market cap.

“And now, they are the frontrunner to win “Phase 3,” the most lucrative part of the contract phase that could be worth hundreds of millions… perhaps billions… per year.

“If you get in before that happens – which could be as soon as 5 pm ET today – you could double your money overnight… and 10x your money in the next 24 months as the rollout continues.”

OK, so a defense contractor that has won some contracts recently, and may get some larger contracts soon… and it’s got a market cap of something in the $200-300 million neighborhood (that’s roughly 1/537th of IBM’s market cap, they’re the largest of the competitors cited by Prins above). And it’s got a share price of 26 cents?

Sadly, looks to me like such a company doesn’t exist.

But you know what does? Warrants that trade at about 26 cents, on a ~$250 million “AI” focused company that does a lot of defense contractor work. And Nomi Prins often teases warrants for this Rogue Strategic Trader newsletter, as a way to get lower-cost leverage on the stocks she likes (they haven’t done well recently, as you might imagine, but she still likes them — she basically inherited the warrants focus from Casey Strategic Trader, a newsletter whose “slot” she effectively took over in the Marketwise publishing universe a few years ago).

So the Thinkolator’s best answer here is that she’s teasing BigBear.ai (BBAI), and more specifically the publicly traded BigBear.ai warrants (BBAI.WT), a legacy of the fact that they went public through a SPAC merger. And whaddya know, that’s pretty well borne out by the wild trading volume in those warrants after Prins went live with her “presentation” — they shot up from about 20 cents on Tuesday to about 60 cents on Wednesday, on about 25X the average trading volume for that warrant.

What’s the “Phase 3” contract she’s talking about? Presumably that would be the next expansion of the Global Force Information Management contract with the US Army — they just got a six-month extension on their Phase 2 work on that contract in June, and they’re leading Phase 2 as the prime vendor (yes, they did compete with Palantir, IBM and CGI for that work, another “match” for the tease). I have on idea when Phase 3 might come, or how big it might be, but the couple analysts who cover BigBear don’t see it bringing any windfalls in the near future — their revenue growth forecast is for next year is similar to the growth that’s happening this year, somewhat below 10% on the top line (and no real change in margins, so they’re likely to keep losing a little bit of money, though they’re close to break-even).

Other than that, though I just wrote about BigBear.ai for a Shah Gilani tease a week or so ago, so I’ll mostly just parrot what I said then… no big news from the company since…

BigBear went public through a SPAC merger in late 2021, and over the past few months they’ve focused their strategy on targeting industries where they see opportunity to implement advanced machine learning — so they are looking now to build in supply chains/logistics, cybersecurity, and autonomous systems, particularly in the military, in large part through a partnership with L3Harris.. and they do see the growing federal AI spending as a substantial driver that’s growing their addressable market. Here’s how BigBear describes itself:

“A leader in decision dominance for more than 20 years, BigBear.ai operationalizes artificial intelligence and machine learning at scale through its end-to-end data analytics platform. The Company uses its proprietary AI/ML technology to support its customers’ decision-making processes and deliver practical solutions that work in complex, realistic and imperfect data environments. BigBear.ai’s composable AI-powered platform solutions work together as often as they stand alone: Observe (data ingestion and conflation), Orient (composable machine learning at scale), and Dominate (visual anticipatory intelligence and optimization).

“BigBear.ai’s customers, which include the U.S. Intelligence Community, Department of Defense, the U.S. Federal Government, as well as customers in the commercial sector, rely on BigBear.ai’s high value software products and technology to analyze information, identify and manage risk, and support mission critical decision making.”

So yes, they are building AI capabilities for the military and corporate customers, and they do have a meaningful backlog (they say it’s $206 million now, having grown 5% over the past year), and there are some larger long-term contracts which could grow significantly beyond that (Gilani was more specific than Nomi Prins is being today, he teased “near $1 billion of Pentagon contracts” must be a reference to the 10-year $900 million contract they got with the Air Force back in January, most of which wouldn’t be firm enough now to call it an “order backlog”).

The challenge has been in generating revenue or earnings growth that is as exciting as the “.ai” at the end of their name. They do have solid contracts, they do seem to be growing pretty well and to be building capacity for larger contracts in the future, particularly with the military, but they had $145 million in revenue in 2021 and $155 million in 2022, with analysts forecasting $165 million in 2023 and $180 million in 2024, so the top-line growth, in the 5-10% range, isn’t setting anyone’s hair on fire… and they’re not profitable. There are only a couple analysts covering this small-cap story, so we should take predictions with a grain of salt, but those analysts don’t see them generating positive cash flow until next year sometime.

And the SPAC deal was late enough in the hype cycle that they didn’t get as much cash as they had hoped for back in late 2021 (many of the SPAC holders redeemed for cash instead — in retrospect, a smart move, so instead of starting out in late 2021 with $326 million in cash and a cleaned-up balance sheet, they got about $50 million in cash and bumped their $100 million in borrowing up to $190 million). Right now, they’re down to about $30 million in cash and they’re still carrying about $190 million in long-term debt (I didn’t look up the debt terms, but they’re probably pretty friendly). That’s not likely to be a crisis, since firms with steady government contracts are generally a good credit risk, but if business doesn’t pick up or become a bit more efficient they could burn through their cash in just 2-3 quarters at this rate, and raising more capital would probably pressure the share price unless they’ve got some good “headline” news by then.

Their last quarter, announced a couple weeks ago, was not dramatic — their results were a hair lower than the estimates, and they continue to offer guidance for the year of “between $155-170 million” in revenue, which means the year might be flat or might have almost 10% revenue growth. Their margins got a little worse, partly because Virgin Orbit, one of their clients, went bankrupt, but they did cut overhead costs over the last year so their “adjusted losses” have been shrinking.

Probably some potential if they can scale their relatively small contracts into larger orders, maybe even that Phase 3 Army contract Prins hints at for the future, though that would probably also involve ramping up their cost structure to handle more work, and the balance sheet is a little bit precarious, so that might be a challenge.

I haven’t seen enough to get me interested at this point, not with the current level of cash burn, the tight balance sheet and the lack of substantial revenue growth, but, well, I guess that’s why it traded down to a $200 million market cap at $1.38 per share last week, trading at less than 1.5X sales and less than the value of their order backlog, though with Gilani and Prins pounding the table it has bounced back a little bit (now $1.75 or so, $270 million market cap). Building scalability is really tough with contractors, since they’re essentially providing a service and often have a “cost+” mindset to just make sure they break even or make a little money on new contracts, instead of reselling their existing capabilities or products and steadily improving margins, like we typically see with small tech and software stocks, but it’s certainly possible.

What’s the story with the warrants, though? To my eye, that’s a dumb bet at 50 cents, and not that much better at 26 cents. The stock would have to generate a 500%+ return from here (going from $1.75 to $11+) for the warrants to be worth anything at all before expiration, and with the share price down well below $2, the warrants don’t provide all that much leverage, either. If the stock surges to between $10-20 at some point over the next three years, then it is quite possible that the warrants would get you a bigger return — but if the stock goes above that, the warrants would likely trigger an early redemption clause (most SPAC warrants have that, to limit warrant leverage once the stock gets above $18 for an extended period of time), and if the stock stays below $11 between now and the warrant expiration, which you would have to consider to be the most likely outcome, given the current share price and the current growth rate, the warrants will expire worthless.

If you like the stock (I can’t say that I do just yet), it’s still quite beaten down right now — so I think it makes more sense to just buy the stock at a low multiple of sales and hope that they get some contract wins to grow that sales number meaningfully… don’t “double down” by buying warrants that are 500% out of the money and dramatically increase your probability of a 100% loss.

That’s just my take, though, and I don’t get to tell you what to do with your money — that’s your call. Have an opinion on BigBear.ai, or other favorites in the military A.I. space? See a reason to like this particular warrant speculation? Do let us know with a comment below… don’t worry, we don’t bite.

P.S. did you notice the “add on” teaser pitch in the order form for Nomi Prins’ “Next Exxon?” This is the tease…

“Nomi recently uncovered a tiny company at the center of a $4 trillion energy shift. A new bill – titled S.1111 – could soon “declassify” a 68-year-old government energy technology called ‘SMR’ for commercial use. And only ONE company in America has a federal license to sell it. Get the name of this tiny company – and details on why it could soar 10X when bill S.1111 goes live – while this information is still under the radar.”

So we can give you a second quick teaser answer today — that’s NuScale Power (SMR), which she started teasing about six months ago, I covered those original “next Exxon” ads here, if you’d like the details. If you’re keeping score, SMR shares are down about 35% since that teaser started circulating… and the warrants on SMR that she was touting (SMR/WS) are down about 45%.