In recent weeks, more evidence has emerged supporting my initial assessment of Digital World Acquisition Corp. (NASDAQ:DWAC). DWAC stock is a special purpose acquisition company (SPAC) planning to merge with Trump Media & Technology Group Corp. (TMTG).

TMTG is expected to own and operate Truth Social, a new social media website led by former President Donald Trump. Reports have indicated that it can make a great deal of money. However, the SPAC is likely to face difficult legal challenges.

A Large Capital Infusion for DWAC Stock

On Dec. 4, TMTG and Digital World announced that the SPAC had made a deal to obtain $1 billion of capital “from a diverse group of institutional investors.” The funds will actually be received when TMTG and Digital World merge, the companies stated.

Patrick Orlando, Chairman and CEO of Digital World Acquisition Corp., elaborated in a statement:

“…by accepting these commitments for a strategic infusion of growth capital, we believe the combined company can grow on an incredibly strong foundation. The liquidity that will be provided to the combined company balance sheet, in excess of the up to $293 million (less expenses) that DWAC may provide, should fortify the strategic positioning of TMTG.”

Indeed, the funds increase the chances of Truth Social succeeding. They will enable the platform to conduct more intensive marketing and pay its talent more, allowing it to attract bigger, more entertaining names.

The deal also indicates that some “big money” investors on the Street are bullish on the outlook of Truth Social. In my view, that’s certainly very good news for TMTG and DWAC stock.

A High-Profile CEO and Bullish Columns

Another positive sign for DWAC stock is the decision by Republican Congressman Devin Nunes to resign his seat in order to become CEO of TMTG.

Of course, Nunes, who’s only 48 years old, could have spent a few decades more in Congress. Or, he could have used his prominence among conservatives to make more money as a Fox News or radio talk show host. The fact that he instead decided to become the CEO of TMTG indicates that he, too, is very upbeat on the company’s outlook.

Meanwhile, earlier this month, Seeking Alpha published a column that was very bullish on DWAC stock:

“Truth Social has very good chances to become a social media hit, not only for the former president but also for investors that consider DWAC. This is because Donald Trump attracts a lot of attention, and attention is the ultimate currency in the social media world.”

The author added that “Truth Social could become one of the most profitable social media companies in the world,” and estimated the market capitalization of TMTG could reach $6 billion. That’s compared to the $1.9 billion market capitalization at which the columnist says it was trading on Dec. 9.

That’s actually well above the $4.5 billion I estimated TMTG is worth in my Nov. 4 article on DWAC stock. That appears to be partly because I gave TMTG a valuation of 25 times my estimate for the company’s first year of profits, while the writer utilized a price-to-sales multiple of six times. The author says the valuations of Twitter (NYSE:TWTR) and Meta Platforms (NASDAQ:FB) are around that level.

TMTG’s Legal Hurdles

Still, TMTG is arguably already facing significantly tougher legal challenges than either Meta Platforms or Twitter. This is in line with my predictions regarding the new company.

In my previous column on DWAC stock, I noted that some feel Trump has been “relentlessly targeted” by “media and government.” I warned that this trend would continue with TMTG, and DWAC stock is risky as a result.

My warning has proven to be accurate already. Earlier this month, Digital World announced that it was being investigated by the Securities and Exchange Commission (SEC) and the Financial Industry Regulation Authority (FINRA).

Additionally, The New York Times has reported that Digital World may have evaded some securities laws.

The Bottom Line on DWAC Stock

The shares’ valuation remains quite low, but Digital World and TMTG continue to face steep legal and headline risks. Still, Trump and his main company, The Trump Organization, have been relatively resilient to these challenges. So, TMTG has a good chance to withstand the attacks it’s facing.

Still, the risk facing DWAC stock remains elevated. Given these points, I recommend those who have bought a relatively small amount of the company’s shares hold onto them. Risk-tolerant investors who do not yet have a position in the name should purchase a relatively small amount of the shares.

On the date of publication, Larry Ramer held a long position in DWAC stock. 

Larry Ramer has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015.  Among his highly successful, contrarian picks have been GE, solar stocks, and Snap. You can reach him on StockTwits at @larryramer.