One of the hottest names of the season has cooled off and it’s worth taking a look into the reasons why. Last month, an announcement from former U.S. President Donald Trump sent previously unknown Digital World Acquisition (NASDSAQ:DWAC) soaring to unprecedented heights when he announced that it would be merging with his newly formed Trump Media and Technology Group (TMTG). The SPAC skyrocketed and many similar companies rose with it. In the weeks that followed, the breakout stock of the season fell as the hype died down. Today it’s back in the news again but DWAC stock isn’t rising as quickly as before — in fact it’s falling.
What’s Happening With DWAC Stock?
Today brought confirmation that the TMTG and DWAC stock merger is moving forward as it was announced that the latter is seeking private investment in public equity (PIPE) investors and has been setting up meetings. DWAC stock was quick to win the support of retail traders. For the deal to progress, though, it needs the support of Wall Street.
These meetings haven’t been enough to boost the stock, though. DWAC is down more than 4% on the day and has gradually fallen by more than 11% over the past five days.
Why It Matters
Stocks like DWAC are interesting to evaluate. While they shoot up to highs that investors can’t help but marvel at, there’s sometimes little to keep them elevated while the merger moves forward. While the securing of PIPE investors would be a major step in the deal, as of now, these meetings are only that — meetings.
Bloomberg reports that while the PIPE terms have yet to be finalized, the funds raised are likely to exceed $500 million. It is also anticipated that PIPE investors will be purchasing shares above the standard individual price of $10 due to the excessive social media demand.
There’s certainly incentive for Wall Street to consider a PIPE investment in the merged company, whose chief asset will be Trump’s social media venture, Truth Social. While this endeavor has the potential to garner a significant following, that door swings both ways. InvestorPlace contributor Thomas Niel recently made a bearish case for DWAC, citing its niche appeal and calling it a “meme stock to avoid.” More recently, though, fellow contributor Alex Sirois broke it down from a bullish perspective, predicting that the stock would soar upon the launch of Truth Social in 2022.
What It Means
It’s also worth noting that PIPE investments don’t just provide companies with an influx of cash pre-merger. They serve to lend credibility to the deal and likewise, to the newly minted company.
The way it looks from here, DWAC will certainly see more gains in the future as the IPO’s launch draws near. While much remains to be seen from Truth Social, there is plenty of reason to expect that when the network launches, it will draw considerable traffic. How long the hype-driven market momentum will last remains to be seen but at least in the short term, expect prices to spike.
DWAC is still worth watching, particularly as it secure PIPE investments and approaches important catalysts.
On the date of publication, Samuel O’Brient did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
