Up 160% in the Past Year, Is It Too Late to Invest in Archer Aviation Stock?

Key Points

• Archer's Midnight aircraft recently completed a 55-mile flight.

• The company could obtain FAA approval for its aircraft as early as next year.

• It has been securing orders and its backlog sits at around $6 billion.

• 10 stocks we like better than Archer Aviation ›

Investing in the electric vertical takeoff and landing (eVTOL) market can be an exciting opportunity. Companies making this type of aircraft can capitalize on significant long-term growth opportunities, in what could be the next big travel trend. But at the same time, hype can take over. Expectations can become inflated, and valuations may rise too quickly.

One scorching-hot eVTOL stock that is a prime example of that is Archer Aviation (NYSE: ACHR). As of the end of last week, Archer's stock has soared by 160% in just the past 12 months. With so much of a rally already taking place, and the stock's market cap now at over $6 billion, is it too late to invest in the business?

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Image source: Getty Images.

Archer's business could soon start to generate revenue

There's a lot of potential for eVTOLs to act as air taxis and ease traffic in busy cities. Archer's Midnight aircraft needs to first obtain certification from the FAA, and it is making good progress in that effort. On Monday, the company announced that the Midnight completed its longest flight yet -- 55 miles. It earned praise from United Airlines CFO Mike Leskinen while doing so. "I was impressed by how quiet the aircraft was," Leskinen said in a press release. United has been an early investor in Archer.

The progress is a good sign that Archer may be able to obtain certification in the near future, potentially by next year. While the company hasn't been generating any revenue thus far and is in the early stages of production (its goal is to produce two aircraft per month by the end of the year), it has been securing orders, with its order book totaling around $6 billion.

The big challenge with Archer's stock is determining its worth

Archer has a lot of potential to grow in value, but there's a significant caveat to consider, which is that the entire eVTOL market was worth just $2 billion in 2024, based on estimates from Grand View Research. While it's projected to be worth $28.6 billion by the end of the decade, that's by no means a sure thing.

Plus, Archer isn't alone in the eVTOL space as Joby Aviation will offer formidable competition, and its market cap is around $14 billion. These two companies alone are already at a combined $20 billion in market cap for an industry that's in such early stages of its growth. And I still have my doubts about just how popular eVTOL aircraft will be, and how practical they may be given the challenges air traffic controllers already deal with today, without air taxis flying around all over the place.

There are a lot of question marks around the industry's future growth that investors shouldn't take for granted. Even if you do believe air taxis are a sure thing and will be the next big trend in travel, then there's still the question about Archer's and Joby's already high valuations, and how much more upside can be attainable for those stocks.

Archer is a highly speculative stock

It may not be too late to invest in Archer simply because the industry is in its early stages. Instead, it may actually be too soon to buy shares of the company. I'd be interested to first see what kind of gross margin the company can achieve on its aircraft to get an idea of whether there can be a path to profitability. This is a capital-intensive business, and breaking even could be a big challenge. And demand is still a big question mark.

At this stage, there's a lot of speculation fueling eVTOL stocks, and that can make investing in Archer a risky proposition. Unless you can stomach that, you may be better off taking a wait-and-see approach with the stock.

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David Jagielski 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.