We recently compiled a list of the 8 Best Drone Stocks to Buy Now. In this article, we are going to take a look at where AeroVironment, Inc. (NASDAQ:AVAV) stands against the other drone stocks.
The term “drone” refers to any remotely piloted aircraft (RPA), which can vary in form and autonomy, either controlled by a human pilot or capable of fully autonomous flights. In 2005, the United States Department of Defense (DoD) and the Federal Aviation Administration (FAA) adopted the term “unmanned aircraft system” (UAS) to describe these aerial drones. This terminology was later adopted by other governmental agencies globally, highlighting the importance of considering various system components rather than focusing solely on the aircraft for regulatory development. The rapid evolution of drones began with the advancement of defense technologies, enabling the remote piloting of aircraft equipped with both weaponized and non-weaponized systems. These larger military drones, often weighing several kilograms, are crucial for deployment in environments too dangerous for human pilots. Today, smaller drones are employed by various government agencies for a range of operations, including precision agriculture mapping and surveillance.
The Russia-Ukraine war, which began in February 2022, has driven a significant increase in demand for drones, as both militaries employ them for various operations, including intelligence, surveillance, reconnaissance, and target acquisition support. The unprecedented scale of Unmanned aerial vehicles (UAVs) deployment caught both Ukrainian and Russian forces unprepared for such extensive use. However, both militaries have rapidly advanced their drone technology, frequently modernizing and adapting these systems directly on the front lines. In a statement this past year, Anton Gerashchenko, an adviser to Ukraine’s Minister of Internal Affairs, stated “This war is a war of drones; they are the super weapon here.” With advancements in artificial intelligence (AI) and increasing legislative support, the drone market seems poised for significant growth.
Another trend involves the development of specialized drones tailored for specific industries. These industry-specific drones are equipped with sensors, cameras, and software designed to meet the unique requirements of sectors such as agriculture, construction, and inspection. These ‘Consumer’ and ‘Recreational’ drones have become a common part of daily life, particularly among drone hobbyists. As of April of this year, over 780,000 drones were reportedly registered with the Federal Aviation Administration (FAA), with 375,226 classified as commercial and 400,858 as recreational.
What Does the Market Think About the Future of Drones?
The U.S. commercial drone market was valued at $5.85 billion in 2023 and is projected to reach approximately $14.11 billion by 2033, growing at a compound annual growth rate (CAGR) of 9.2% from 2024 to 2033. In 2023, the rotary blade segment held the largest market share at around 81%, while the hybrid segment is anticipated to experience the fastest growth, with a CAGR of over 11% during the forecast period.
On the other hand, a report by MarkNtel Advisors states that the global military drone market was valued at approximately $20.21 billion in 2023 and is projected to grow at a CAGR of about 12.21% from 2024 to 2030. This rapid growth is driven by the widespread adoption of Extended Visual Line of Sight (EVLOS) UAVs for long-range missions focused on data collection, battle management, and electronic warfare. A notable example of this technology came in the form of General Atomics’ testing of advanced datalink and avionics enhancements for the MQ-1C Gray Eagle Extended Range (GE-ER) drone back in 2022.
Our Methodology
To compile the list of the best drone stocks to invest in, we first sifted through ETFs and online rankings to come up with a preliminary list. Next, we scanned Insider Monkey’s database of 920 hedge funds and selected the 8 drone stocks that were the most widely held by institutional investors. Why are we interested in the stocks that hedge funds pile into? The reason is simple, our research has shown that we can outperform the market by imitating the top stock picks of best hedge funds. Our quarterly newsletter’s strategy picks 14 small and large-caps every quarter and it has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A rocket on its way to the sky, representing the power of the company’s unmanned aircraft systems.
AeroVironment, Inc. (NASDAQ:AVAV)
Number of Hedge Fund Holders: 20
AeroVironment, Inc. (NASDAQ:AVAV) designs, develops, produces, delivers, and supports a portfolio of robotic systems and related services for government agencies and businesses in the United States and internationally.
On June 7, Jefferies raised its price target for AeroVironment, Inc. (NASDAQ:AVAV) to $230 from $195, while maintaining a Buy rating. This revision reflects confidence in the company’s near-term growth potential, particularly due to increased production of Loitering Munitions. The positive outlook is supported by recent insights gathered during a visit to AeroVironment, Inc. (NASDAQ:AVAV)’s Simi Valley Small Unmanned Aerial Systems (SUAS) production facility. Discussions with senior executives during the visit highlighted the company’s strategic initiatives and growth drivers, including its advantageous position to capitalize on the rising demand for autonomy in unmanned systems.
Additionally, AeroVironment, Inc. (NASDAQ:AVAV) has recently made significant advancements in various defense initiatives. Notably, the company’s Wildcat drone has been selected by the Defense Advanced Research Projects Agency (DARPA) for further development under its ANCILLARY program, which aims to enhance ship-based operations in challenging maritime environments.
At the end of the first quarter of 2024, 20 hedge funds tracked by Insider Monkey held stakes in AeroVironment, Inc. (NASDAQ:AVAV) worth $216.4 million, up from 15 hedge funds in the previous quarter with stakes valued at $199 million.
Overall AVAV ranks 8th on our list of the best drone stocks to buy. You can visit 8 Best Drone Stocks to Buy Now to see the other drone stocks that are on hedge funds’ radar. While we acknowledge the potential of AVAV as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than AVAV but that trades at less than 5 times its earnings, check out our report about the cheapest AI Stock.
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Disclosure: None. This article is originally published at Insider Monkey.