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Why Digital World Acquisition and Phunware Shares Are Plummeting Today

The Motley Fool
The Motley Fool
 2022-01-22

What happened

Another day, another round of big pricing swings for Digital World Acquisition (NASDAQ: DWAC) and Phunware (NASDAQ: PHUN) . The two Trump-affiliated stocks had posted big gains Thursday, but they saw outsized sell-offs amid a pullback for the broader market on Friday. Digital World Acquisition closed out the session down 9.2%, while Phunware was off 12.8%.

Growth-dependent and speculative stocks have seen turbulent trading lately, and the broader market was hit with big pullback today following worrying performance from some big consumer products and technology companies. There doesn't appear to be any business-specific news behind Digital World Acquisition and Phunware's share price slides, but the two companies were caught up in the broader pullback.

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Image source: Getty Images.

So what

With interest rate hikes looming and a litany of other macroeconomic risk factors on the table, investors have become increasingly skittish when it comes to high-risk stocks. The market is just heading into earnings season, and performance updates from some big names foregrounded another bearish catalyst on Friday.

Recent news that Peloton plans to lay off 41% of its sales and marketing staff and halt hardware production due to excess inventory raised a potential red flag for growth-dependent stocks, and Netflix 's subsequent fourth-quarter earnings report appears to have triggered more pronounced concerns. The streaming leader's 8.3 million net subscriber additions fell short of management's target for 8.3 million adds, earnings fell 34% year over year in the quarter, and guidance for just 2.5 million net subscriber additions in the current quarter prompted panic among investors.

Digital World Acquisition and Phunware started the week's trading with big gains, but their shares dipped amid mounting focus on macroeconomic risks and wavering interest in risky growth stocks.

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^IXIC data by YCharts

Now what

Digital World Acquisition is a special purpose acquisition company (SPAC) that's on track to merge with Trump Media & Technology Group (TMTG). After the merger is completed and Trump Media & Technology Group is taken public, the SPAC's capital resources will be put toward TMTG's push to grow its upcoming Truth Social media platform.

Digital World Acquisition stock has gotten a bump from excitement surrounding Truth Social and the possibility that Donald Trump will mount another campaign for the White House in 2024. Shares are still up roughly 42% in 2022 despite today's valuation slide.

Meanwhile, Phunware has also gotten a Trump-related boost recently, but its shares are down roughly 9% year to date after today's pullback. The software company helped build the Trump 2020 campaign app and provided additional data and social-media services, but it's still unclear whether it will play any part in Truth Social or a potential 2024 bid.

At a time when the market is looking for safe bets, investors have little visibility when it comes to the performance outlooks for Digital World Acquisition and Phunware. It's possible that the stocks will post significant gains from current pricing levels, but investors should move forward with the understanding that each is a high-risk play at a time when investors are becoming increasingly cautious.

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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool owns and recommends Netflix and Peloton Interactive. The Motley Fool has a disclosure policy .

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