Why Shorting Archer Aviation Stock Could Be Dangerous

Short-selling can deliver spectacular returns when overvalued companies collapse, but it can also create devastating losses when markets move against bearish bets. The asymmetric risk profile makes shorting particularly hazardous during periods of rapid technological change, where seemingly overpriced stocks can continue to climb as new business models emerge and mature.

The current environment presents especially treacherous conditions for short-sellers. With artificial intelligence, autonomous systems, and defense modernization driving massive government and private investment, companies operating at the intersection of these trends often defy traditional valuation metrics. What appears overvalued today can quickly transform into tomorrow's essential infrastructure provider.

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Archer Aviation (NYSE: ACHR) exemplifies this dynamic perfectly. After surging 202% over the past 12 months, the electric aviation company has attracted significant short interest, with 11.7% of outstanding shares sold short as of mid-May 2025. But beneath the surface, a fundamental business transformation is underway that could make this one of the most dangerous short positions in the market.

The short thesis looks compelling on paper

Archer became a prime short target following its meteoric rise, and the bearish case appears straightforward. The company operates in the nascent electric vertical takeoff and landing (eVTOL) market with limited recurring revenue and significant regulatory hurdles ahead. Commercial air taxi operations require extensive FAA certification and, for widespread adoption, costly investments in specialized vertiport infrastructure and air traffic management systems.

Recent research from Culper Research amplified these concerns, alleging that Archer had misled investors about key development milestones and questioning the timeline for FAA certification. Culper Research accused the company of misrepresenting testing progress and aircraft readiness, claiming Archer's "continued promotion of near-term commercialization is not only premature, but reckless." Like most pre-revenue companies, Archer is valued purely on potential rather than current financial performance, making it vulnerable to any signs that development progress is falling short of expectations.

While initial operations can leverage existing helipads and airport infrastructure, the scaling challenge looms large. Widespread air taxi adoption will eventually require substantial investments in dedicated takeoff and landing facilities, charging networks, and traffic coordination systems. The capital intensity and coordination complexity create natural barriers to rapid scaling that could limit long-term revenue growth potential.

Defense contracts change everything

What short-sellers are missing is Archer's strategic pivot into defense applications through its dedicated Archer Defense unit. The company has already secured a $142 million contract with the U.S. Air Force's Agility Prime program to deliver up to six Midnight eVTOL aircraft for military evaluation. This represents roughly half of the Department of Defense's initial eVTOL investments, positioning Archer as a leading contender for larger procurement programs.

The military use case completely transforms the value proposition. Archer's Midnight aircraft offers a 20- to 50-mile range, 150 mph top speed, and acoustic signature far quieter than traditional helicopters. These characteristics make it ideal for military missions requiring stealth and agility, including quick-reaction transport, medical evacuation, resupply, and intelligence gathering operations.

More importantly, defense adoption bypasses the civilian scaling bottlenecks that concern short-sellers. Military bases already possess suitable landing areas, and the Department of Defense has established procurement pathways designed to accelerate promising technologies into operational use. Success in prototype evaluations typically leads to "programs of record" where the military commits to fleetwide adoption worth hundreds of millions to billions of dollars.

Strategic partnerships multiply the opportunity

Archer's exclusive partnership with defense technology company Anduril Industries significantly expands its addressable market and credibility within military circles. Together, they're developing hybrid-propulsion VTOL aircraft that combine electric lift with fuel-based generators for extended range, directly addressing military requirements that pure battery-powered aircraft cannot meet.

Anduril brings proven defense contracting expertise, having recently secured a $642 million Marine Corps counter-drone system deal and a $99.7 million Space Force contract. This partnership positions Archer for larger defense opportunities beyond pure aircraft sales, potentially including integrated autonomous systems and battlefield mobility solutions.

The timing couldn't be better. Recent conflicts have demonstrated the strategic value of quiet, agile aircraft that can operate in contested environments where traditional helicopters face increasing vulnerability to drone swarms and advanced air defenses. The Department of Defense is actively investing in distributed operations concepts where eVTOL aircraft play a central role, creating immediate demand for proven capabilities.

Why this matters for short-sellers

Full disclosure: I am a long-term shareholder in Archer Aviation and a firm believer in the transformational potential of eVTOL technology. This perspective undoubtedly influences my optimistic view of the company's defense pivot and long-term prospects. However, the fundamental shift from commercial-focused to defense-enabled operations represents a measurable change in Archer's risk profile that short-sellers ignore at their peril.

For short-sellers betting on commercial aviation challenges, Archer's defense transformation represents a massive blind spot. While civilian air taxi operations face legitimate scaling hurdles, military contracts provide immediate validation and revenue potential that could sustain the company through any commercial development delays.

With key partnerships with established military contractors, shorting Archer looks increasingly like a bet against the inevitable militarization of eVTOL technology. In a market where defense spending continues accelerating and autonomous systems receive priority funding, that's a dangerous position to maintain.

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George Budwell has positions in Archer Aviation. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.