Archer Aviation Shares Slide, Now Bargain Priced for 2025

Key Points

• Archer Aviation's development of its Midnight eVTOL aircraft positions it as a leader in the future of urban air mobility
• The company's expansion into the defense sector with Archer Defense diversifies its revenue potential and opens doors to lucrative military contracts.
• Strong financial backing and strategic partnerships provide Archer Aviation with the resources and expertise to execute its growth strategy.

 

Archer Aviation NYSE: ACHR, a leading developer of electric vertical takeoff and landing (eVTOL) aircraft, experienced a stock price decline of up to 9% on January 13, 2025. This downturn coincided with a broader market sell-off triggered by new U.S. restrictions on AI chip exports. Despite the short-term market turbulence, Archer continues to make significant strides in its pursuit of urban air mobility. 

The recent launch of Archer Defense, its dedicated military aircraft division, alongside a $430 million capital raise and exploration of aggressive stock buybacks, signals a proactive growth strategy. With ongoing progress toward FAA certification and key partnerships in place, this dip in Archer's stock price may present a compelling bargain-priced entry point for investors seeking long-term growth potential in the eVTOL sector.

Near-Term Turbulence, Focused on Long-Term Flight

Archer Aviation's stock price pullback reflected broader market anxieties related to U.S. restrictions on AI chip exports. This downturn was a continuation of a downturn started by insider selling activity by CTO Thomas Paul Muniz, who sold $600,000 worth of stock on January 7, 2025. Two days later, on January 10, JP Morgan NYSE: JPM adjusted its rating on Archer to "Neutral" while raising its price target to $9 from $6 which was below the trading price of $11.50 reached the week before. This shift, despite the increased price target, signals a more cautious near-term outlook based on the stock's rapid price appreciation in recent months. 

Current short interest, at 24.6% of the free float (a two-week high), reflects continued bearish sentiment among some investors. However, recent bullish options activity suggests that confident large investors anticipate a rebound and significant price appreciation. This divergence in market sentiment highlights the uncertainty surrounding Archer's short-term trajectory. 

While Archer Aviation faces challenges due to broader market trends and investor sentiment, it's crucial to acknowledge the company's substantial advancements in key areas. The ongoing development of the Midnight aircraft, coupled with the active pursuit of commercial and military contracts, demonstrates significant progress.

These factors, combined with Archer's strong financial standing, provide a more balanced picture that extends beyond the immediate market pressures. It is essential to consider the short-term challenges and the long-term potential when evaluating Archer Aviation's overall position.

Balancing Near-Term Volatility with Long-Term Potential

Archer Aviation is strategically positioning itself for growth in the commercial and military eVTOL sectors. Its flagship eVTOL aircraft, Midnight, designed for urban air mobility, has already garnered substantial orders from United Airlines NASDAQ: UAL, totaling up to $1.5 billion.

The company's high-volume manufacturing facility in Covington, GA, is on track for production commencing in early 2025, following FAA-type certification. Simultaneously, Archer Defense, the company's military division, is collaborating with Anduril Industries to develop a hybrid VTOL aircraft targeted at a specific DOD program.

As of the third quarter of 2024, Archer Aviation held a strong cash position of $501.7 million, though the company has yet to generate revenue. Significant investments in research and development resulted in a net loss and negative EBITDA for the quarter. However, a debt-to-equity ratio of 0.16 suggests a healthy balance sheet. As of January 13, 2025, Archer had a quick ratio and current ratio of 6.03, further indicating its ability to manage short-term liabilities. 

The recent $430 million equity financing, which raises total funding to nearly $2 billion, bolsters Archer's financial outlook. This capital infusion will support Archer Defense initiatives, ongoing aircraft development, regulatory approvals, and scaled production at the Covington facility.

In collaboration with Stellantis NYSE: STLA, Archer aims to reach an annual production capacity of 650 aircraft by 2030.

Soaring Ambitions, Grounded Risks

Investing in Archer Aviation carries inherent risks that warrant careful evaluation. The eVTOL industry is in its early stages and faces substantial regulatory hurdles, most notably the FAA certification process. While Archer reached a key regulatory milestone with the finalized SFAR in late 2024 and aims for full certification by late 2025, the process is complex, and delays or unforeseen challenges could significantly impact commercialization timelines.

Furthermore, competition within the eVTOL sector is intensifying, with companies like Joby Aviation NYSE: JOBY vying for market dominance. To succeed, Archer must effectively differentiate its Midnight aircraft and forge a strong market presence.

Archer Defense's success hinges on winning and executing military contracts. The defense sector is notoriously competitive, with many established players and rigorous bidding processes. While the partnership with Anduril is a strategic advantage, the outcome of the targeted DOD program and the ultimate scale of military contracts remain uncertain.

Archer, like many pre-revenue companies, also faces financial risks. Continued investment in research, development, and scaling of production will require substantial capital. While the $430 million equity raise extends Archer's financial runway, investors should carefully monitor the company's burn rate and assess the potential need for future funding rounds.

Finally, macroeconomic conditions and geopolitical events, such as the recent restrictions on AI chip exports, can significantly influence investor sentiment and Archer's stock performance. These broader market factors further complicate the company's investment potential.

Military Might, Urban Mobility, Discount Price

Despite recent market turbulence that has driven down Archer Aviation's stock price, creating what some analysts view as a bargain, the company remains positioned for substantial long-term growth in the eVTOL sector. Archer's strategic expansion into the defense market with Archer Defense, alongside its continued progress toward commercialization with the Midnight aircraft, provides a diversified approach to revenue generation. 

The company’s nearly $2 billion in funding, bolstered by the recent $430 million capital raise, directly addresses the financial risks associated with pre-revenue companies, providing ample runway to execute its strategic vision. Strong partnerships with established players like Stellantis and United Airlines further de-risk Archer’s ambitious growth strategy.

While challenges remain in this early-stage sector, Archer Aviation offers investors a compelling opportunity to participate in the future of urban air mobility and military aviation. Investors with a long-term horizon and an appetite for calculated risk are encouraged to conduct further research and assess Archer Aviation's potential within their investment portfolios.