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Velodyne Lidar Stock Jumps 87% On Amazon Tie Up – What Next?

Tim Worstall
Tim Worstall trader
Updated 8 Feb 2022

Trade Velodyne Lidar Shares Your Capital Is At Risk

Key points:

  • Velodyne Lidar has signed an investment agreement with Amazon
  • Amazon could end up with 20% of the outstanding equity
  • This has obviously boosted Velodyne but will it go further?
  • How to Buy Amazon Shares

Velodyne Lidar Inc (NASDAQ: VLDR) stock jumped as much as 87% postmarket on the announcement of a tie-up with Amazon. Velodyne stock has since fallen back to a 35% gain in today’s premarket. So, the Lidar deal with Amazon is seen as a good one, but not as totally transformative.

Part of this is uncertainty over what the deal really means. We’ve not had a release of, or a discussion about, the deal as yet. We have the terms of the deal – Amazon will put in up to $200 million in return for near 40 million shares at the last 30 day prevailing price – but not the reason for it fully explained. The deal is also warrants, not a direct cash injection right now.

Also read: The 3 EV Stocks You Need In Your 2022 Portfolio

So, this is at least a potential lifeline for Velodyne which hasn’t been looking good of late. The Lidar stock is down 84% on the year preceding last night’s announcement.

But what is actually the real deal here? It could just be a speculative investment by Amazon, of course, it could be. But there could also be more to it than this. Lidar – as in lidar the technology, not the company name – is one way of getting autonomous vehicles to work. Well, maybe it is once all the kinks are ironed out of the technology. Amazon has significant investment in this space what with the link up with Rivian, so perhaps this is more than just an investment. What if it’s the precursor to the supply chain integration of Velodyne into any Amazon self-driving adventure or even with Rivian?

That would be much more interesting and we might well expect to see that fade-off of the stock price rise reverse as this is considered by the market more generally.

This could then be leveraged. For the short interest in Velodyne – pre-announcement – was 24% of the outstanding stock. That’s a big position that will need to be bought back if there is another serious and sustained rise in the Velodyne Lidar stock price. If, note if, the market thinks that this is a supply chain agreement, not just an investment, then those shorts may well have to cover.

There is also a bizarre part to this. Other lidar companies were boosted by the news of the investment deal. AEye, up 16%, Luminar 4%, Microvision 4%, and so on. OK, it’s possible to think that Amazon tying up with Velodyne means that all lidar companies are more valuable. But it’s also possible to think that one major potential buyer making its choice clear, as Amazon has done with Velodyne, means that all other lidar makers are now less valuable. Having, you know, removed a potential major buyer from the marketplace.

The future of the Velodyne Lidar stock price now probably depends upon how the market takes any further details of the deal. Is it just an investment? Or is it some part of Amazon and – perhaps – Rivian building an integrated supply chain?

Tim Worstall
Tim Worstall is a freelance writer specialising in economics and the financial markets.