If you are looking for the next big idea that could change the world, then Archer Aviation (NYSE: ACHR) might just pop up on your radar screen. While the company isn’t actually working on technology that is revolutionary per se, it is trying to do something that could change the lives of a lot of people in a very positive way.
But here’s what you need to know about Archer Aviation before you go in thinking it is a no-brainer millionaire maker.
Without getting too deep into the weeds, Archer Aviation is building a small airplane that can land and take off vertically. The hope is that the company’s planes could be used as air taxis, ferrying people across short distances very quickly. That’s notable because more and more people are living in large cities, where congestion is a constant headache. For a few extra dollars, customers could jump into an Archer Aviation aircraft and simply bypass the streets.
Image source: Getty Images.
That’s not exactly an Earth-shaking development, but it is one that could significantly improve the lives of a lot of people. Archer Aviation plans to offer the airplane, the prototype of which is called Midnight, to others and to operate its own fleet of aircraft. That’s not a bad plan, because it basically gives the company a way to prove out the air taxi model while it ramps up production to eventually supply others with the aircraft. Assuming Archer Aviation’s own planes see high customer demand, selling planes to other air taxi companies will be that much easier.
Notably, Archer Aviation has passed some important milestones. For example, the Federal Aviation Administration (FAA) has “issued for public inspection the final airworthiness criteria for Archer’s Midnight aircraft.” This clears the way for getting the testing and certification processes in place for the aircraft, key hurdles to jump before it can be approved for commercial use.
Archer has also been granted a license to operate as a commercial airline from the FAA, something it needed to receive if it wanted to operate a fleet of its own air taxis. These wins are among other important successes that have unlocked additional capital investment from key partners.
That last bit is the part that should cause investors to pause. Archer Aviation is achieving some of its vital goals, but one success it can’t claim is profitability. For example, in the first quarter of 2024, it lost $116.5 million. That makes total sense, though, because it is still building out its business. However, it ended the period with only $405 million or so in cash, which isn’t a huge sum of money for a company trying to build an aircraft manufacturer from the ground up.
So getting more cash from key partners is a very important step, and every penny helps. The problem is that Archer Aviation is still a long way from its ultimate goals of making and selling air taxis and operating its own fleet of air taxis. And a lot could still go wrong that would lead it to fall short. Execution is going to be crucial here, and investors will have to watch closely to make sure progress toward those goals continues and that Archer Aviation doesn’t run short of cash.
This is not the type of stock that risk-averse investors should buy. It is a somewhat risky bet that air taxis will end up being an important mode of transportation at some point in the future, and that Archer Aviation will be one of the big players in the air taxi space.
If everything works out perfectly according to plan, Archer Aviation could help make you a millionaire. But it could also be a good idea that flames out, like many ideas have before it. The risk-reward trade-off today is tilted toward the risk side. Most investors will probably want to wait for Archer Aviation to hit a few more milestones before buying shares.
And even those that are adventurous enough to buy the stock so early in the company’s development, well, they should probably tread lightly for now.
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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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