In this article, we will take a look at the 7 Best Small-Cap Drone Stocks to Buy Now.
Drones are the strategic weapon in modern warfare and we have experienced the use of high-end drone technology in the Iran-Israel and Russia-Ukraine wars. Drones or unmanned aerial vehicles (UAV) were also prominent in the 2020 conflict between Azerbaijan and Armenia.
Read More: 8 Best Military Drone Stocks to Buy According to Analysts.
Drones are not only used in military applications but have become popular in amateur photography, videography, and logistics. Drone technologies continue to improve and emerge, for instance, the U.S. Department of Defense is currently investigating the development of uncrewed vehicles that use AI through its Replicator initiative. Vertical takeoff and landing (VTOL) autonomous aircraft are gaining popularity in the military. VTOL autonomous vehicles provide various features for military purposes including ISR to search and rescue.
According to a report from MarketsAndMarkets, the global drone industry was valued at $30.2 billion in 2024 and is projected to cross $48.5 billion in 2029, growing at a compound annual growth rate (CAGR) of 9.9%. Whereas, the UAV volume is expected to rise from 5.42 million units in 2024 to 7.51 million units in 2029.
Drone stocks remain an attractive investment option for investors as the industry continues to expand. However, not only publicly traded companies present investment opportunities, exchange-traded funds (ETFs) are also a notable option. Two major drone ETFs: SPDR S&P Aerospace & Defense ETF and iShares US Aerospace & Defense ETF returned over 38% and 27% in 2024, outperforming the broader market. Apart from established players in the drone sector, investors have a variety of emerging small-cap stocks to explore.
With that, let’s take a look at the 7 Small-Cap Drone Stocks to Buy Now.
Pixabay/Public Domain
Our Methodology
We shifted through stocks that were involved in the drone business with a market capitalization between $200 million and $5 billion, as of January 23. We then selected the 7 best small-cap drone stocks based on hedge fund sentiment around each stock using Insider Monkey’s data for Q3 2024. The best small-cap drone stocks are ranked in ascending order of their hedge fund holdings.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
7 Best Small-Cap Drone Stocks to Buy Now
7. Unusual Machines, Inc. (NYSE:UMAC)
Market Capitalization: $209.13 Million
No. of Hedge Fund Holders: 2
Unusual Machines, Inc. (NYSE:UMAC) is engaged in manufacturing and selling drone components and drones. The company makes products such as ultra-low latency video goggles for drone pilots. The company operates a drone-focused e-commerce marketplace and sells its products across a diversified brand portfolio, including FatShark and Hypetrain Motors.
On December 18, 2024, Maxim Group’s analyst Matthew Galinko initiated a Buy rating on UMAC shares and set a price target of $18, representing an upside of 24% from the current price level. The analyst highlighted an attractive valuation, pointing out that UMAC is currently trading around 16.1 times its projected 2025 revenue and 9.7 times its 2026 revenue. The company’s strategic positioning with dual-use products and collaboration with Red Cat Holdings, Inc. adds to the company’s advantage.
During the third quarter of 2024, Unusual Machines, Inc. (NYSE:UMAC) made significant achievements, including the commencement of its component business and the launch of its BlueUAS Framework flight controller. The company’s sales increased 9% year-over-year to $1.53 million in Q3, while the gross margin was around 26%. Unusual Machines, Inc.’s B2C channel has a strong presence which continues to drive sales for the company. In addition, the company has a strong presence in the U.S. Department of Defense market due to increased demand for non-Chinese drone components. With the new administration’s high tariffs expected on Chinese imports, UMAC will continue to improve its sales in the U.S.
6. Red Cat Holdings, Inc. (NASDAQ:RCAT)
Market Capitalization: $701.41 Million
No. of Hedge Fund Holders: 7
Red Cat Holdings, Inc. (NASDAQ:RCAT) is a drone technology company providing robotic hardware and software for military, government, and commercial use. The company is a great example of a growth story, specifically after it acquired Teal Drones in 2021. Teal Drones secured the U.S. Army’s SSR Tranche 2 contract, which would potentially bring $250 million over five years.
On January 23, Red Cat Holdings, Inc. (NASDAQ:RCAT) secured more orders from the Army National Guard and the U.S. Government Agency (OGA), with a total value of over $518,000. The military has ordered Edge 130 drones, which again signifies the growing demand for Red Cat’s drone technology. To further enhance their systems, the company is collaborating with Palantir to use its visual navigation and AI tool, Maven.
In Q2 FY2025, Red Cat Holdings, Inc. formed several partnerships and secured million-dollar contracts to expand its technology and solidify its position in the industry. The company has generated around $4.31 million in the first two quarters of FY25. The company expects the full-year revenue between $80 million and $120 million. RCAT is an attractive risk/reward stock with a relatively low market cap and significant upside potential.
5. EHang Holdings Limited (NASDAQ:EH)
Market Capitalization: $1.01 Billion
No. of Hedge Fund Holders: 7
EHang Holdings Limited (NASDAQ:EH) is an investment holding company involved in the business of UAV systems and solutions. The company designs, develops, manufactures, sells, and operates Autonomous Aerial Vehicles (AAVs) and supporting systems. EHang also manages and develops passenger transportation, logistics, smart city management, and aerial media solutions.
EHang Holdings Limited (NASDAQ:EH) has gained traction following stronger-than-expected market demand for its flagship EH216-S pilotless passenger-carrying aerial vehicles and growing momentum in the company’s operations. On January 2, equities research analysts at CICC Research initiated coverage of EH and gave an Outperform rating with a price target of $18.13.
During the third quarter of 2024, the company achieved a record number of order deliveries, with 63 units of EH216-S delivered. The company posted revenue of RMB 128 million, exceeding guidance by 4% and a year-over-year growth of 347.8%. EHang Holdings Limited (NASDAQ:EH) became the first electric vertical take-off and landing aircraft (eVTOL) company to receive three airworthiness certificates for pilotless aircraft, reflecting EHang’s capabilities for mass production and deliveries.
EHang Holdings Limited is making strategic partnerships to enhance its R&D and actively expanding its operations in international markets including Brazil, Japan, and Thailand.
4. Redwire Corporation (NYSE:RDW)
Market Capitalization: $1.44 Billion
No. of Hedge Fund Holders: 7
Redwire Corporation (NYSE:RDW) is a global space infrastructure and innovation company that offers civil, commercial, and national security programs in the U.S., Europe, and internationally. On January 21, the company announced the acquisition of Edge Autonomy, a leading provider of field-proven uncrewed airborne system (UAS) technology. The company has acquired Edge Autonomy for $925 million on a debt-free, cash-free basis.
Edge Autonomy will enhance Redwire Corporation’s position as a global leader in multi-domain autonomous technology, expanding its portfolio of combat-proven autonomous airborne platforms. The merger is expected to increase Redwire’s revenue immediately, with a full-year 2025 revenue projected between $535 million and $605 million.
On January 22, HC Wainwright & Co. analyst Scott Buck upgraded RDW’s share price from $18 to $26 and maintained a Buy rating on the stock. The analyst has increased the price target following the latest acquisition. In addition to this deal, Redwire Corporation (NYSE:RDW) recently signed a five-year contract worth $45.56 million to design and develop large novel and emerging spacecraft technologies for the U.S. Air Force Research Laboratory (AFRL). RDW remains an emerging drone stock with a small market capitalization.
3. Eve Holding, Inc. (NYSE:EVEX)
Market Capitalization: $1.45 Billion
No. of Hedge Fund Holders: 7
Eve Holding, Inc. (NYSE:EVEX) along with its subsidiaries provides urban air mobility solutions. The company is engaged in the design and production of eVTOLs, including material services, maintenance, technical support, training, ground handling, and data services. Eve also manages the development of urban air traffic management systems.
Eve Holding, Inc. (NYSE:EVEX) has completed the assembly of its full-scale engineering prototype and initiated testing, marking a new development era. The company plans to test the prototype in the first half of 2025. On December 12, 2024, Canaccord Genuity analyst Austin Moeller upgraded the price target to $7 from $6.75 and maintained a Buy rating on EVEX. The analyst remains bullish on EVEX following the company’s improved liquidity, which now sits at $445 million, allowing the company a three-year runway for cash consumption.
Eve Holding, Inc. has a pre-order backlog of almost 2,900 aircraft valued at $14.4 billion, reflecting the strong market demand and potential future revenue. The company has launched ‘Tech Care,’ an integrated service portfolio for maintenance, logistics, and training, improving customer support and operational efficiency. Eve Holding, Inc. (NYSE:EVEX) continues to expand its operations and the rising demand for eVTOLs makes it an attractive investment option.
2. Vertical Aerospace Ltd. (NYSE:EVTL)
Market Capitalization: $645.35 Million
No. of Hedge Fund Holders: 9
Vertical Aerospace Ltd. (NYSE:EVTL) is a United Kingdom-based global aerospace and manufacturing company engaged in the eVOTL business. The company focuses on designing, manufacturing, and selling zero-operating emission eVTOL aircraft. The company is targeting to sell its flagship eVTOL, the VX4, for use in the advanced air mobility (AAM) market. The VX4 has undergone the initial stages of its flight test campaign as the company advances into the next stage.
Vertical Aerospace Ltd. (NYSE:EVTL) recently announced $50 million in funding by Mudrick Capital. The company will receive a $25 million upfront funding and an additional $25 million backstop. Vertical Aerospace continues to add capital investment to fuel its research and development for the VX4 aircraft and expand testing and certification capacities.
On January 23, Canaccord Genuity analyst Austin Moeller revised the price target from $13.50 to a previous $16 target. The analyst maintains a Buy rating on the stock and the price target still reflects an upside of 55% from the current price level. Analysts have cut the price following the company’s aggressive capital raises to support its VX4 aircraft project. Analysts believe that the company has significantly mitigated financial risk for itself. However, they remain bullish on the company’s ability to achieve certification for the VX4, which is anticipated in 2028.
1. Archer Aviation Inc. (NYSE:ACHR)
Market Capitalization: $4.90 Billion
No. of Hedge Fund Holders: 23
Archer Aviation Inc. (NYSE:ACHR) is an aerospace company focused on the design and development of eVTOL aircraft. The company is expanding its network globally with new agreements and new facility installations. Archer Aviation recently signed a partnership with the aviation sector in Abu Dhabi to serve as the primary eVTOL aircraft manufacturer for the Emirate’s planned electric air taxi operations. Archer has become the first eVTOL manufacturer to establish manufacturing capabilities in the United Arab Emirates. The company has also received approval to install a manufacturing facility in Covington, Georgia, which will be able to produce 650 aircraft annually by 2030.
In the third quarter of 2024, the company achieved key partnerships and manufacturing expansions to drive growth. The company’s collaboration with industry leaders including Stellantis provides a robust financial backing for manufacturing growth. Stellantis has committed up to $400 million in additional capital to the company.
Archer Aviation Inc. (NYSE:ACHR) is targeting key markets in the U.S., Middle East, and Asia, supported by government backing. The company has a pre-order backlog of approximately $6 billion, including pre-delivery payments, reflecting strong market interest.
While we acknowledge the potential of ACHR to grow, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than ACHR but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 20 Best AI Stocks To Buy Now and Complete List of 59 AI Companies Under $2 Billion in Market Cap.
Disclosure. None. Insider Monkey focuses on uncovering the best investment ideas of hedge funds and investors. Please subscribe to our daily free newsletter to get the latest investment ideas from hedge funds’ investor letters by entering your email address below.
