Market Resilience: A Bullish Outlook for 2024
The past two years have been a wild ride for investors, with inflation reaching unprecedented highs in 2022, prompting the Federal Reserve to implement aggressive interest rate hikes. As a result, investor enthusiasm waned, and stocks plummeted. However, the capital markets have once again demonstrated their resilience, with advancements in areas like artificial intelligence, a booming pharmaceutical sector, and an improving macroeconomic picture contributing to a more bullish mindset.
A Rebound in the Making
As of December 18, the S&P 500 and Nasdaq Composite have gained 23% and 29%, respectively, this year. While this rebound is certainly encouraging, it’s essential to approach with caution, as some stocks may be experiencing upward momentum that isn’t entirely justified. One such example is Archer Aviation, whose shares have soared by 38% this year, outperforming both the S&P 500 and Nasdaq.
A Speculative Opportunity
Archer Aviation, an electric air taxi manufacturer, has garnered significant attention from big-name brands in the commercial airline industry. However, the company remains a pre-revenue operation and has yet to commercially scale its vehicles. Despite this, Archer recently announced a strategic partnership with defense technology start-up Anduril, which specializes in autonomous systems for the defense sector. This partnership could be a game-changer for Archer, adding legitimacy to its progress as it eyes commercialization.
Unlocking the Defense Industry
The partnership with Anduril not only strengthens Archer’s existing footprint in the public sector but also opens up new opportunities in the defense industry. The global total addressable market for stealth operations technology is estimated to be worth $45 billion, with a compound annual growth rate of nearly 7% between 2024 and 2033. Additionally, the market for military robotics and autonomous systems is expected to nearly triple in size over the next decade, reaching $32 billion by 2032.
A Valuation Conundrum
With a market capitalization of $3.6 billion and a purchase order book in excess of $6 billion, Archer’s implied price-to-sales multiple would be roughly 0.5. While this might suggest that Archer stock is a bargain, it’s essential to approach with caution, as purchase orders do not always translate into revenue, and order amounts can change at any moment.
A Speculative Opportunity Heading into 2025
While the deal with Anduril and Archer’s pursuit of the defense industry are significant accomplishments, I still see Archer as largely a speculative opportunity heading into 2025. Before investing in Archer Aviation, consider the Motley Fool Stock Advisor analyst team’s top 10 stock picks for 2025, which could produce monster returns in the coming years.
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