Why Archer Aviation Stock Is Plummeting Today

Shares of Archer Aviation (NYSE: ACHR) are falling Tuesday. The stock lost 7.3% as of 2:10 p.m. ET, but was down as much as 10.4% earlier in the day. The loss comes as the S&P 500 (SNPINDEX: ^GSPC) slipped 0.1% and the Nasdaq Composite (NASDAQINDEX: ^IXIC) was down 0.3% on the day.

A cash infusion to continue developing eVTOL aircraft

Archer, which develops electric vertical takeoff and landing (eVTOL) aircraft, announced Tuesday that it had raised just north of $300 million from a group of large institutional investors, including funds managed by BlackRock. The additional equity capital brings the company's total liquidity to roughly $1 billion.

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Archer's central aim is to create a future where its eVTOL aircraft provide taxi services around the globe. However, it is now leveraging its technology for defense applications and will use the new funding to "accelerate [its] hybrid aircraft platform development for the defense market and beyond." CEO Adam Goldstein remarked that defense is an opportunity "substantially larger than [he] originally expected."

Is this good for the company?

Isn't this good for Archer? Yes and no. In the long term, the funding helps Archer expand into a lucrative industry that could prove extremely beneficial, but any return is likely a long way off.

In the shorter term, however, private funding can dilute a stock's value for existing shareholders. More shares available means each one is worth less -- the basic rules of supply and demand. Furthermore, some investors may feel that raising so much capital for a new strategic push distracts from the company's core mission.

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Johnny Rice 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.