Rapid urbanization across the globe has resulted in transportation issues in many cities. A potential answer to this problem is a unique aviation form known as electric vehicle take-off and landing aircraft, or eVTOL.
These aircraft have been under development for over a decade, and the industry is on the verge of introducing the first commercial-stage vehicles capable of carrying passengers. Companies such as Archer Aviation (ACHR 0.50%) and Joby Aviation (JOBY -3.74%) aim to start commercial flights as soon as 2025.
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From an investment perspective, why is this developmental milestone significant? The urban air mobility (UAM) market is expected to reach a value of up to $1 trillion by 2040 and $9 trillion by 2050, demonstrating the growing need for more efficient transportation methods in densely populated cities.
Contrastingly, Archer Aviation and Joby Aviation have a combined market capitalization of less than $5 billion as of this writing. Thus, these two speculative UAM stocks may harbor significant growth potential in the coming years.
So which of these UAM stocks is the better buy?
The case for buying Archer Aviation stock
Archer Aviation's eVTOL aircraft, dubbed Midnight, is engineered to transport four passengers and a pilot for distances up to 100 miles at speeds reaching 150 mph. The aircraft is optimized for round trips of about 20 miles each way, which allows for minimal recharging times between journeys.
Currently, Archer is in the final stages of certifying Midnight with the Federal Aviation Administration (FAA). If all goes according to plan, the company intends to initiate commercial flights next year. Midnight is designed with safety, low noise, and environmental friendliness in mind.
Archer's business strategy includes a ride-sharing program in select major U.S. cities, as well as selling individual aircraft to third parties. In alignment with this strategy, the company has secured a purchase agreement with United Airlines as well as a partnership with the U.S. Air Force for a series of air mobility-related projects.
On the financial front, Archer had $625 million in liquidity at last count. However, the company has been burning through approximately $111 million per quarter over the previous fiscal year. With a potential commercial launch in sight, Archer may need to seek additional funds to secure its long-term financing needs, unless it can significantly reduce its cash burn.
Archer's shares were on a bull run last year (up 228% in 2023) but have since reversed course this year, falling by over 28% in 2024. Midnight's manufacturer currently sports a market cap of only $1.35 billion due to its recent downturn.
The case for buying Joby Aviation stock
Joby's eVTOL candidate, a five-seater aircraft comprised of one pilot and four passengers, is designed to fly at speeds of up to 200 mph and cover distances of up to 100 miles on a single charge. The company is currently testing and certifying its aircraft with the FAA to launch commercial flights in 2025.
Joby's primary business model is centered around the development of all-electric aircraft that can operate quietly in densely populated urban environments. The company plans to generate revenue by booking commercial passengers through an app-based aerial ride-hailing platform.
As part of its comprehensive development strategy, Joby has secured an exclusive six-year contract with Dubai to operate air taxis in the region and a multiyear collaboration with the U.S. Department of Defense (DoD).
This ongoing collaboration with the DoD provides the company with a unique opportunity to evaluate the operational capabilities and maintenance profiles of its aircraft ahead of a commercial launch.
Financially, Joby is in a strong position, with $1 billion in cash and cash equivalents at the end of the most recent quarter. However, the company has a significant burn rate ($115 million in the most recent quarter), and any major regulatory setbacks could force the company to raise capital from a position of weakness.
Like Archer, Joby's shares saw a significant increase in 2023 (up 98%). However, the company's shares have struggled in 2024 for reasons that are not entirely clear. At the time of writing, Joby's market cap stands at a mere $3.4 billion, thanks to the stock's 25.5% drop in 2024.
The verdict
Both of these UAM stocks appear deeply undervalued. However, Archer Aviation is arguably the better buy right now due to its significantly lower market capitalization, which doesn't seem to reflect the commercial potential of its partnership with United Airlines.
That said, Joby stock is also an intriguing growth play. UAM is nearly assured to become a reality within the next two years, and Joby is well positioned to capitalize on the explosive growth of this novel transportation market.
