In 2022, there has been no shortage of buzz surrounding the in-progress special purpose acquisition company (SPAC) merger of Digital World Acquisition (NASDAQ:DWAC) and Trump Media & Technology Group (TMTG). Even while TMTG remains controversial, there are plenty of buyers and DWAC stock could keep going higher.
Now, I’m as contrarian as it gets, but this is no time to “fade the rips” (the opposite of buying the dips). Digital World Acquisition, through its connection to former U.S. President Donald Trump, has momentum and short sellers should just stay out of the way.
This is a hard message for some folks to swallow, no doubt. How can DWAC stock go from $10 to $95 in such a short period of time without sounding the “too much, too fast” alarm?
Always remember, though, that high-priced stocks can always go higher. Besides, the chatter about Truth Social isn’t just political, as data from Apple (NASDAQ:AAPL) suggests that this Trump-connected business could turn out to be a major revenue generator.
A Closer Look at DWAC Stock
From the very outset, short sellers got burned with DWAC stock. Prior to the Oct. 20 TMTG merger announcement, the stock traded near $10 — but soon after the announcement, the share price reportedly surged 357% in a single day.
Were Reddit users involved in that jaw-dropping share-price spike? It is certainly possible, but we can’t dismiss the Trump factor, as he has a large number of supporters.
In any case, DWAC stock maintained the bullish momentum for a little while, peaking on Oct. 22 at $175. The stock then retraced to $40, but has been clawing its way back lately. It is now currently around $75.
As of early February 2022, Digital World Acquisition shares were quickly approaching the crucial $100 level on heavy trading volume. From a technical perspective, this is quite bullish and taking a short position could be disastrous.
The Big Launch
Clearly, the star of the show here isn’t the shell company, Digital World Acquisition. It is all about Trump and TMTG and their associated social media platform, Truth Social.
From the outset, Trump’s vision for Truth Social has been politically conservative, yes, but also focused on free speech.
“Unlike with the Big Tech platforms, there will be no shadow-banning, throttling, demonetizing, or messing with algorithms for political manipulation. […] We will not be treating users like lab rats for social experiments, or labeling alternative views as ‘disinformation,'” Trump explained.
We can assume that Trump was referring to his own struggles with social media platforms in the past.
Prior to the scheduled Feb. 21 launch for the Truth Social app, it was reportedly available to Apple users. The roll-out was glitch-ridden at first, with some users having trouble logging in.
The Demand Is There
The glitches aren’t necessarily a bad sign. It is possible that the log-in issues occurred due to the overwhelming demand for the Truth Social app.
The data tends to confirm this, as evidently the downloads for the free Truth Social app exceeded 170,000 in just two days. So, whether we happen to like Truth Social or not, as investors, we can’t deny that the app is in high demand.
There is also the potential for powerful revenue generation here. Digital World Acquisition stated that Truth Social is anticipated to have 81 million registered users by 2026.
Moreover, by that year, the average revenue per user is expected to increase to $13.50. That might not sound like a lot, but multiply that dollar amount by 81 million users, and then re-consider your position on DWAC stock if necessary.
The Bottom Line on DWAC Stock
It is perfectly fine to have positive or negative feelings about TMTG and Truth Social. Yet, as investors, it is wise to set our feelings aside and focus on the facts.
And the fact is, Truth Social is a very popular app. There is the potential for big-time revenue generation, even if it doesn’t happen overnight.
Therefore, taking a short position against DWAC stock probably isn’t a great idea. There is no need to fight a battle that could, sooner or later, cost you a whole lot of capital.
On the date of publication, David Moadel 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.