BigBear.ai Holdings stock soared after the artificial-intelligence software company reported solid quarterly earnings and announced the acquisition of a generative AI start-up that could bolster its ability to compete with Palantir Technologies.

The company posted a loss of 3 cents a share for the third quarter, surpassing the loss of 7 cents a share analysts had anticipated. Revenue totaled $33.1 million, down 20% from last year but ahead of Wall Street’s call for $31.8 million. BigBear reported net income of $2.5 million, marking its second ever quarterly profit and the first since 2023.

Shares jumped 18.15% to $7.16 on Wednesday. The stock was up 60% this year, buoyed by lucrative government contracts and the broader excitement around AI.

BigBear, which sells its software to the Defense Department and other branches of the federal government, continues to double down on the defense sector. The company announced a $250 million deal on Monday to acquire Ask Sage, an AI platform built for defense and national security agencies.

Ask Sage already supports more than 100,000 users across hundreds of companies and 16,000 government teams, BigBear CEO Kevin McAleenan said.

The move expands the market BigBear can address and “strengthens its position as a leading provider of AI, computer vision, and decision advantage solutions for national security,” said Cantor Fitzgerald analyst Jonathan Ruykhaver in a research note. The firm reiterated an Overweight rating for the stock and boosted its target for the price to $7 from $6.

Defense-related stocks have surged in 2025, so it makes sense that BigBear is leaning into the trend. The Global X Defense Tech (SHLD) exchange-traded fund has climbed 79% this year, led by its largest holding, Palantir Technologies.

“Despite delays resulting from the government shutdown, we believe the potential for new business in the field of border security and defense remains strong,” McAleenan said. Those opportunities are likely “to materialize into contracts next year” with the help of President Donald Trump’s sweeping tax-and-spending bill, he said.

Palantir remains the undisputed leader in defense software. Its scale will be difficult for BigBear to compete with. Earlier this year, Palantir notched a 10-year, $10 billion contract to provide software and data analytics to the Army.

BigBear can certainly pick off smaller, more specialized government contracts, however, and even has a partnership with Palantir. Cantor Fitzgerald pointed to the Customs and Border Protection’s investments in biometric entry-and-exit systems, for instance, which is one of BigBear’s areas of expertise. Security needs at the 2026 FIFA World Cup and 2028 Olympics in Los Angeles could also give BigBear a boost.

The real challenge is turning those tailwinds into consistent profits. BigBear’s losses haven’t consistently narrowed since its went public via a 2021 merger with a special-purpose acquisition company, or SPAC. And the company is on track to post its lowest fiscal-year revenue as a public company in 2025.

It is also a riskier play than its already risky competitor. Palantir has a beta of 2.08 over the past 52 weeks, meaning it is roughly twice as volatile as the broader stock market. BigBear’s beta is even higher at 2.47.

Investors should expect more bumpy quarters ahead, said H.C. Wainwright analyst Scott Buck, though individual programs should eventually have less impact on quarterly results as the business scales up.

Ask Sage may be part of that trajectory. The start-up, which was founded in 2023, is expected to post annual recurring revenue of roughly $25 million in 2025, up sixfold from a year ago. The deal is expected to close late in the fourth quarter of 2025 or early in the first quarter of 2026.

“We believe BigBear.ai remains well positioned to be a beneficiary from the current administration’s priorities,” Buck wrote, reiterating a Buy rating for the stock and an $8 price target.