The rise and proliferation of special purpose acquisition companies or SPACs may itself be in a bubble. Though SPACs have been around for a while, they’ve garnered tremendous popularity over the last several months. Gores Holdings VI (NASDAQ:GHVI) may be a blank-check company worth considering based on its announced merger target Matterport. Given the technology firm’s relevance to the post-pandemic ecosystem, plenty of eyeballs are on GHVI stock.
One watcher is frequent CNBC contributor Josh Brown, who labeled Mattersport’s core business of 3D modeling and imaging technology provider as a “category killer.” Brown further went on to say that “This is the first time I’m buying a SPAC that’s already announced a deal at a premium, so I’m pretty excited.” While you shouldn’t base your decisions on a single analyst’s opinion, I’d say he’s on CNBC for a reason.
But beyond that anecdotal quip, Brown has reason to be excited about his pick up of GHVI stock. As you know, the novel coronavirus pandemic has fundamentally changed our society. While fears surrounding Covid-19 infections have declined since the beginning of the crisis, many Americans are still hesitant about being in public places with others.
A prime example comes from the movie theater industry. As I’ve mentioned many times before, a Deloitte survey revealed that most Americans won’t feel comfortable about watching a film at the box office until the middle of this year. Like it or not, contactless platforms to conduct business remains relevant and could be so for the remainder of the year, depending on how the crisis plays out.
Cynically, that puts GHVI stock in an enviable position. Thanks to Matterport’s 3D imaging, would-be homebuyers could narrow their choices of which property to choose from. On the other end, construction projects could save time and costs using intuitive 3D imagery to speed the process along.
Deceptively Poor Fundamentals May Hinder GHVI Stock
On the surface, you may be tempted to join Brown in the fun with GHVI stock. According to data from the U.S. Census Bureau, total construction spending on an annualized basis in January 2021 amounted to $1.52 trillion. That’s up 5.8% year-over-year.
For perspective, the January 2020 metric was up 9.4%. However, since our economy was booming at the time, gaining nearly 6% during what initially appeared an apocalyptic event is a win on anyone’s books. Hence, this adds more to the bullishness of GHVI stock.
However, the breakdown of construction demand isn’t balanced. On the residential construction front, January of this year saw an annualized $722.4 billion spend, up 21% year on year. But the same cannot be said for nonresidential construction spend, which was $799 billion in January 2021, down 5%.
Of course, the argument for GHVI stock is that the Biden administration promised to “build back better.” Further, with Democrats like Sen. Elizabeth Warren in the majority, new tax proposals could generate revenues for ramping up infrastructure. That would aid the build back initiative. And other tax initiatives could boost consumer purchasing power.
Yet the problem with this argument is that I’m not entirely sure we can tax our way to prosperity. Some of the proposals that I’ve heard, such as a wealth tax, seem to imply taxation on balance sheet assets. That’s problematic because it’s difficult to value such assets — and an unfavorable assessment could hurt the business community which is still reeling from the pandemic.
Also, it’s worth mentioning that the residential real estate construction boom may not be sustainable. For instance, in August 2020, annualized construction spending jumped 6.8% month-to-month. Previously on record, the highest month-to-month performance was 4.1%, set in July 2003.
In other words, we haven’t seen such a massive boon in construction demand before, which may suggest that this sector is overheated.
A SPAC Too Late
It’s not just a possible over exuberance in the residential landscape that I’m worried about. As I mentioned up top, SPAC fever has gone into overdrive. That’s not my words but rather an op-ed from TheWall Street Journal.
This doesn’t mean that GHVI stock has no chance for upside as it’s probably one of the better SPACs out there. Indeed, there might be enough sentiment for this blank-check firm to jump higher. Also, on the fundamentals, the Biden administration could work its magic and get our economy back on track.
Undoubtedly, many people will dive into GHVI stock on the Matterport business potential so you can potentially ride market psychology. At the same time, I’m not liking the disconnect between soaring residential spending and declining commercial projects.
Besides, the real estate narrative could be driven mostly by affluent buyers taking advantage of the cheap money environment. But should yields continue to rise, this sentiment could deflate quite rapidly. It may be a hot play among blank-check firms but I’m staying on the sidelines for now.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.