Why BigBear.ai Stock Is Skyrocketing Today

BigBear.ai (NYSE: BBAI) stock is surging again in Monday's trading. The software company's share price was up 13.6% as of 1 p.m. ET and had been up as much as 32.8% in the daily session. Meanwhile the S&P 500 (SNPINDEX: ^GSPC) was down -0.5%, and the Nasdaq Composite (NASDAQINDEX: ^IXIC) was down 0.4%.

BigBear.ai stock opened today's trading with explosive gains powered by another round of strong, meme stock-driven momentum. The big gains for the stock lately could be creating a moderate short-squeeze dynamic. The company's share price is now up 120% over the last month.

BigBear.ai stock continues to rocket higher on meme stock momentum

Meme stock trades have come roaring back into fashion lately, and BigBear.ai has emerged as a hot pick for investors seeking volatile stocks with the potential to post explosive gains. Last week, The Economic Times published an article looking at whether BigBear could be on track to deliver returns comparable to artificial intelligence (AI) software leaders.

BigBear.ai's bullish momentum was then strengthened by news that Palantir Technologies had scored new defense industry partnerships and contracts. Adding another positive valuation catalyst for the stock, President-elect Trump announced last week that he plans to appoint venture capitalist David Sacks as AI and cryptocurrency czar in his new administration. The appointment news was interpreted by investors as a sign that the incoming Trump administration will take steps to promote growth for the artificial intelligence industry and help create new opportunities for companies in the space.

As BigBear.ai has rocketed higher, investors who placed bets against the stock through short-selling may now be covering their bets in order to minimize their losses. Buying back shares that had been lent through short sales could be having the effect of pushing shares even higher. In turn, remaining short-sellers have even greater incentives to cover their shorts -- and resulting gains could be making BigBear.ai stock even more visible and appealing to meme stock traders.

Are investors getting too greedy with BigBear.ai stock?

BigBear.ai stock has recorded massive gains over the last month on relatively little material news for the business. Recent disclosures of stock sales from institutional investors and insiders with the Securities and Exchange Commission (SEC) could be raising questions about how long the company's recent rally can continue.

As of the company's last comprehensive ownership disclosure in April, investment firm AE Industrial Partners owned 57.7% of the company's common stock. Meanwhile, BBAI Ultimate Holdings is a smaller unit within AE Industrial Partners that holds some of the parent company's stake in BigBear.ai. As the stock has rocketed higher over the last two months, BBAI Ultimate Holdings has been sells large amounts of shares. Along with the massive run-up for BigBear.ai stock, the wave of selling from a large institutional stakeholder suggests that investors may want to be cautious with the stock right now.

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Keith Noonan 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.