Why Archer Aviation Stock Sank 10.8% Last Month and Has Kept Falling in September

Key Points

• Archer Aviation stock saw pullbacks in response to acquisition news and the company's second-quarter report.

• A wider-than-expected loss in Q2 raised concerns about cash burn at the company.

• Archer Aviation is ramping up its bets on the defense industry.

• 10 stocks we like better than Archer Aviation ›

Archer Aviation (NYSE: ACHR) stock got hit with a substantial pullback in August. The electric vertical takeoff and landing (eVTOL) company's share price sank 10.8% in the period, according to data from S&P Global Market Intelligence. The valuation decline came even as the S&P 500 managed to climb 1.9% and the Nasdaq Composite rose 1.6%.

Archer Aviation's valuation headed lower last month in response to the company's second-quarter report and a handful of other catalysts. Sell-offs for the stock have continued in September's trading.

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Archer stock sank on spending news and other catalysts

On Aug. 7, Archer announced that it was acquiring two companies to help accelerate its growth in the defense industry. The company said it was acquiring key talent and the patent portfolio from Overair and also announced that it was purchasing key composite manufacturing assets and a roughly 60,000-square-foot production facility from Mission-Critical Components. The news corresponded with sell-offs for Archer stock, and the pullback worsened when the company published its Q2 report.

Archer released its second-quarter results on Aug. 11, and the business update arrived with a wider-than-expected loss. The company posted a net loss of $206 million in the period, expanding from a loss of $106.9 million in last year's quarter. Along with news that the company was making new acquisitions, the Q2 update raised some concerns about the company's financial footing and long-term path to profitability. Archer is still in a pre-revenue state, and there's a lot of speculation involved in charting the business's growth trajectories in the defense and commercial-flight markets.

The stock also faced other bearish catalysts last month. While defense artificial intelligence (AI) stocks have generally been hot this year, the trend cooled off a bit last month -- and Archer's valuation was impacted by the shift. The stock also saw pullbacks in response to some concerning inflation data and a report from the Massachusetts Institute of Technology (MIT) indicating that most businesses weren't getting much return on their investments in generative AI.

What's next for Archer?

Archer's valuation has continued to move lower in this month's trading. As of this writing, the stock is down 5.8% in September despite a gain of 0.8% for the S&P 500 and a gain of 2% for the Nasdaq Composite across the period.

Investors seem to be losing some confidence in the near-term outlook for the company to begin commercial flights in the U.S. market. While the company may be able to start commercial flights in Saudi Arabia, the United Arab Emirates, and some other territories in the not-too-distant future, it may be a while before the company's Midnight eVTOL craft are making commercial U.S. flights. A challenging regulatory outlook in the U.S. could help explain why the company has been ramping up its bets on defense-industry applications.

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