Small-cap growth stocks often play second fiddle to their larger counterparts in today's market. Over the past two years, investors have flocked toward a small handful of well-known large-cap equities in the fields of artificial intelligence (AI) and weight loss drugs.
The attraction lies in the anticipation that both AI and weight loss drugs will drive substantial revenue growth for industry behemoths in the forthcoming years. While these prospects are likely to materialize, several small-cap growth stocks still have the potential to outperform even the leading entities in AI and weight loss care.
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This small-cap stock is worth considering
Archer Aviation(NYSE: ACHR) is a small-cap company leading the charge in developing electric vertical take-off and landing (eVTOL) aircraft.
If you're not familiar with eVTOL, these cutting-edge vehicles are designed to address urban traffic congestion and provide innovative solutions for urgent package deliveries, military operations, and bridging route gaps for major airlines.
Since the start of the fourth quarter of 2023, I've grown increasingly bullish on this eVTOL stock, and I think it holds considerably more growth potential than most top AI/weight loss care stocks at the moment. Here's a brief overview of my investing thesis.
Compelling upside potential
With its flagship aircraft, known as Midnight, Archer is positioned to become one of the first companies to develop a commercial-stage eVTOL vehicle. Now, Archer still has to complete the certification process, and that's a big hill to climb.
However, I've been impressed by management's ability to attract major partners like United Airlines and Stellantis, as well as its ability to steadily move the company toward the goal of launching commercial flights as soon as 2025.
And the market has taken notice of this progress. Over the past 10 months, Archer's shares have gapped up by a healthy 151%. Given the market opportunity inherent in eVTOL aircraft, I believe this upward trend has a long way to go before it starts to lose momentum.
Supporting this thesis, Morgan Stanley, a major investment bank and financial services company, has stated that the eVTOL industry could reach a $45 billion valuation as soon as 2030 and a $1 trillion valuation by 2040. For reference, Archer, which is well positioned to capture an outsize chunk of this untapped market, is currently valued at under $1.6 billion.
While Morgan Stanley is essentially predicting exponential growth in the eVTOL industry over the next 16 years, I don't believe this projection is far-fetched. Cities plagued by traffic congestion are in dire need of new transportation alternatives, and eVTOL presents a logical solution. This promising scenario augurs well for Archer and its early investors.
Final thoughts
Archer Aviation is a high-risk, high-reward growth stock. It operates in an emerging industry that has yet to fully take shape, and regulatory obstacles could potentially hinder its path to market. If this were to occur, Archer's shares could suffer a significant setback due to the company's limited financial resources and high operating costs.
However, I'm not investing in this innovation-centric growth stock for a swift return. I'm prepared to hold on to it for the next 20 years, if not longer. By 2044, I fully anticipate eVTOL to be ubiquitous in most large cities around the world and Archer to be among the industry leaders.
This belief has prompted me to make Archer one of my largest equity holdings, despite its significant risks. Furthermore, I plan to continue buying the stock as the company approaches its market debut.
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George Budwell has positions in Archer Aviation. The Motley Fool recommends Stellantis. The Motley Fool has a disclosure policy.
