One of the most media-centric investors today is Cathie Wood, the CEO of Ark Investment Management. Ark Invest is the home to several exchange-traded funds (ETFs) that focus primarily on emerging trends in the big data and biotech sectors.
Although Wood's funds touch several different names in the stock market, the investor has been a longtime supporter of Tesla in particular. Recently, Wood has been buying loads of a different electric vehicle (EV) company, though. Flying taxi business Archer Aviation (ACHR -5.31%) is increasingly becoming a prominent feature among three of Wood's funds.
While the allure of a flying electric taxi might seem exciting, there is far more to Archer's business. Let's dig into the whole picture and assess if the stock is worth a position in your portfolio.
Ready for liftoff?
At first glance, Archer appears to be a hybrid of ride-hailing platform Uber and air-mobility service Blade. The company's core objective is to provide an alternative for travelers in dense, congested urban environments. While there is a need for such a service, Archer has garnered the attention of much more than municipal council members and city officials.
The U.S. Air Force and Marine Corps. have each expressed interest in Archer's vehicles. The Marine Corps. believes that Archer's aircraft are less costly and quieter than helicopters. Substituting current military aircraft with those developed by Archer could directly impact battleground operations as it relates to safety. In addition, the Air Force has been exploring use cases involving Archer's aircraft and has even signed a contract worth up to $142 million with the company. The Air Force has publicly stated that Archer's innovations as they pertain to electric-powered aircraft, including vertical takeoff, landing ability, and subtle noise character, represent a "potential paradigm shift in military aviation and operations".
Given the stamp of approval from the military, Archer stock may appear as a no-brainer. After all, as seen with other commercial-sector heavy enterprises such as Palantir, the government can be a steady, predictable source of business for top contractors. Investors should know, however, that rescue missions and military operations are not the only use cases for Archer beyond its vision to transform urban mobility.
Archer has a number of strategic partners in the private sector, including Stellantis, Boeing, and United Airlines. It shouldn't come as a shock that developing this type of technology is expensive. Since it was founded in 2018, Archer has raised over $1 billion in funding. Stellantis has played a critical role in the fundraising efforts as it has agreed to invest up to $150 million in the company subject to specific milestone achievements by Archer. Moreover, United Airlines has participated in several investment rounds and agreed to purchase 100 Archer aircraft upon broader commercialization. Lastly, Boeing and Archer recently reached a litigation settlement whereby Wisk (a subsidiary of Boeing) will act as the exclusive supplier of autonomous technology for Archer's future aircraft.
Image source: Getty Images.
Should you invest in Archer?
Cathie Wood has been building a position in Archer since 2021. However, since early August, the tech investor has significantly ratcheted up her buying activity. Over the last two months, Wood has increased her position in Archer from roughly 9.3 million shares to 22.5 million shares, adding nearly half-a-million shares just over the last week.
Right off the bat, this seems a little curious. Archer is set to announce third-quarter earnings on Nov. 9. Given that Wood is pouncing on the stock before earnings might signal that she has reason to believe the company will surprise investors. However, I view this as highly unlikely. Archer is still a pre-revenue business, and management does not expect commercialization until 2025. For now, Archer's earnings calls are more akin to status updates around the company's progress as well as its capital needs.
I think Wood is buying shares in Archer for a couple of reasons. First, the stock is trading close to the middle of its 52-week high and low. Wood may view this as an opportunity to lower her cost basis, as she frequently bought the stock at much higher prices in 2021. Moreover, Wood also has a meaningful position in Joby Aviation, one of Archer's top rivals. By taking a stake in Archer, Wood may be hedging other EV and mobility exposures in her portfolio.
From my standpoint, Archer has a lot of tailwinds that make it look attractive. But with that said, investors who own the stock should employ a long-term mindset. Air taxis are an interesting but largely unproven market. While there are some niche services, these businesses have not yet (and may never) experience the same mainstream appeal as ride-hailing applications. Furthermore, Archer is clearly still in the early-development phase, and commercialization is, at best, over a year away. I view the stock as largely speculative, but it could be worth a small position in your portfolio depending on your risk profile.
