Soaring to New Heights: Investing in Drone Stocks and Companies
Drones, also known as unmanned aerial vehicles (UAVs), are taking off. Once primarily used in military applications, drones are now mainstream with surging commercial and consumer uses. This rapid growth has fueled investor interest in drone stocks and companies.
This comprehensive guide examines top drone stocks and manufacturers to consider, emerging trends and innovations, key factors driving growth, and tips for investing in this high-flying sector.
An Introduction to Drones and Drone Companies
What are Drones and UAVs?
Drones are aircraft that fly without an onboard human pilot. They are remotely piloted or increasingly have autonomous capabilities programmed for flight. Drones are also referred to as UAVs.
History and Evolution
While drones became prominent due to military uses, early development began in the 1900s. Throughout the 20th century, drones continued to evolve with wartime innovations by various nations. By the 1990s, drone technology had advanced considerably, with the emergence of the iconic Predator drone.
After 9/11 and the wars in Iraq and Afghanistan, military drone usage surged. This spending boom accelerated technological capabilities. Costs also began dropping significantly, leading to growing commercial and consumer drone use over the last decade.
Top Key Points
- Drones have rapidly expanded from primarily military use to widespread commercial and consumer applications.
- Top public drone companies include Parrot, Ambarella, AeroVironment, Kratos and Boeing which offer different exposures.
- Autonomous flight, 5G networks, electric drones, swarming drones and data analytics are major technology trends.
- Declining costs, improving capabilities, increased adoption and supportive regulations are growth catalysts.
- When investing in drones, balance stability and growth, consider the full supply chain, and partner with experts to mitigate risks.
- Drones represent an extremely compelling tech sector for investors with massive headroom thanks to their versatility and steady improvements.
Commercial and Consumer Applications
Drones have expanded well beyond military applications:
- Aerial photography, inspections, and mapping
- Package delivery
- Surveillance and security
- Agriculture crop monitoring and spraying
- Filmmaking and entertainment
- Weather and environmental monitoring
- Emergency response
Consumer drones are also used by hobbyists for photography, racing, and recreational purposes. Emerging future applications include autonomous air taxis and drone swarm technology.
Drone Industry Growth
The drone industry has rapidly evolved from primarily military focus to strong commercial adoption and consumer popularity. According to market researcher Drone Industry Insights, over 2 million commercial drones were operating globally in 2019. This is expected to grow over 3X to 6.3 million by 2024.
Grand View Research projects the global drone market size will reach $43 billion by 2025, expanding at a CAGR of 20% driven by increasing demand in construction, agriculture, utilities, and energy industries. TechNavio predicts the consumer drone market will grow 22% annually through 2022.
With this tremendous growth, investing in drone stocks can offer compelling opportunities. Leading drone companies are well positioned to benefit from rising adoption across diverse industries.
Top Drone Stocks and Manufacturers
Here are some of the top public drone companies and drone stocks to evaluate:
Parrot
Founded in 1994 and based in Paris, France, Parrot (PARRO) is a leading drone manufacturer for consumer, commercial, and government users. Parrot offers an extensive range of recreational and professional quadcopters, fixed wing UAVs, ground control software, and sensors. Parrot has partnerships with companies such as Boeing and Ferrari for specialized drones.
Parrot has faced stiff competition from DJI in the consumer drone market. However, Parrot drones remain competitively priced with excellent flight times. Parrot is focusing more on commercial drones and revenues from software driven mapping solutions.
Ambarella (AMBA)
Headquartered in Santa Clara, California, Ambarella is a leading semiconductor company specializing in low-power, HD video compression and image processing chips. Ambarella chips power many popular drone models.
Ambarella doesn’t actually make drones. The company is a key drone component supplier, providing the technology that enables drone cameras and video transmission. Ambarella’s revenue is closely tied to drone market growth making it an appealing derivative drone investment.
AeroVironment (AVAV)
Based in Simi Valley, California, AeroVironment is a technology company specializing in drones, tactical missile systems, and EV charging solutions. AeroVironment’s unmanned aircraft systems are used extensively by U.S. military and allies. Their small footprint and hand launch/landing capabilities have made them extremely popular for surveillance and reconnaissance.
AeroVironment is a drone industry pioneer. They developed one of the first small drones for the military in the 1970s. In the past they’ve created innovative high-altitude UAVs like the Helios, which could fly for many hours at over 90,000 feet for commercial communications applications. They also produce the popular fixed wing Raven surveillance drone.
While AeroVironment has a strong military drone focus, their commercial UAS business is growing through partnerships and acquisitions. This includes crop planning and analytics services for agriculture.
Kratos Defense & Security Solutions (KTOS)
Kratos Defense & Security Solutions, headquartered in San Diego, California, provides technology solutions to U.S. government and security agencies. A key segment for Kratos is advanced unmanned systems and drones used for target and surveillance applications.
Kratos produces military jet powered drones like the Valkyrie which can fly alongside manned fighter jets. Their Mako drones offer tactical surveillance capabilities. And Kratos is working on cutting-edge concepts like the XQ-58A Valkyrie which can act in a “Loyal Wingman” role to support manned aircraft.
With drones an increasing portion of defense budgets, Kratos is well positioned to benefit. Their drones often complement high performance manned jets. Kratos also offers target drones for weapons system testing and training.
Boeing (BA)
Aviation giant Boeing is heavily invested in unmanned technology through its subsidiary Insitu. Based in Washington State, Insitu designs and manufactures high-performance unmanned aerial systems and software. Their ScanEagle is one of the most popular intelligence gathering drones used by the military.
Boeing has been ramping up its drone capabilities and capacity, seeing strong demand from the U.S. and allies. Their unmanned systems division is also pursuing commercial opportunities with drones. This includes inspection services for transmission lines, turbines, and energy equipment using the unique flying capabilities of drones.
With Boeing’s aerospace expertise and resources, their drone segment provides growth and diversification from commercial planes and defense.
PrecisionHawk
Founded in 2010 in Raleigh, North Carolina, PrecisionHawk is a private drone technology company specializing in drone data analysis software as well as drone services. They offer end-to-end drone solutions for commercial industries seeking aerial data for decision making. This includes agriculture, energy, construction and insurance industries.
PrecisionHawk also manufactures several fixed wing and multi-rotor drones optimized for these commercial applications. Their dedicated drone data platform allows customers to access and analyze drone data to improve business operations. PrecisionHawk is backed by Comcast Ventures, U.S. Venture Partners and other top VCs, raising over $100 million to date.
DJI
DJI is the 800-pound gorilla in the consumer drone market. Headquartered in Shenzhen, China, DJI has dominated the global hobbyist drone sector with over 70% market share in 2020. Their Phantom and Mavic series quadcopters have become synonymous with consumer drones thanks to their performance, capabilities, and reasonable pricing.
While they are firmly consumer focused, DJI does offer commercial solutions as well like the Matrice series. Most of their revenue still comes from consumer sales however. DJI has also faced certain data security concerns due to ties with the Chinese government, which is a downside risk.
As a privately held company, investing directly in DJI shares isn’t currently an option. But its massive size and impact make it a major force in the drone industry.
Drone Industry Trends and Innovations
Several technological breakthroughs and market trends are shaping the growth of drones:
Autonomous Flight
More advanced programming and sensing technologies like lidar, GPS and visual sensors are enabling far greater autonomous flight capabilities. Drones can increasingly navigate to destinations and carry out missions with reduced human control needed. This expands commercial possibilities and cost savings.
5G Connectivity
New 5G cellular networks provide major performance benefits for drones. The fast speeds and low latency of 5G dramatically improves real-time control and video streaming from drones. This enables precise flight even when far away from the pilot and facilitates applications like aerial inspections.
EV Drones
Electric vertical takeoff and landing (eVTOL) aircraft are an emerging development with major potential. Often called flying cars or taxis, EV drones can transport passengers directly to destinations. While still in testing, drones from companies like Joby Aviation aim to offer regional air transportation services.
Swarm Drones
Swarm technology allows groups of drones to collectively communicate and coordinate flight patterns. This can enable everything from spectacular entertainment displays to last mile delivery services. Swarming allows drones to efficiently work together for maximum coverage and scale.
Data Analytics Software
Sophisticated software that manages and analyzes images, videos, thermal scans, lidar data and other drone sensor inputs is key to unlocking value from drone flights. Improved analytics helps users generate business insights faster from drone data collection missions.
Counter-Drone Technology
With wider deployment, managing risk from unauthorized drones is also growing in importance. There is rising demand for counter-drone technology like jamming systems and interceptor drones to enforce no-fly zones and perimeter defenses.
Factors Driving Drone Industry Growth
Several powerful tailwinds make the drone sector particularly appealing for investment:
Declining Costs
Advanced manufacturing techniques are steadily reducing drone production costs. Civilian quadcopter drones can now be purchased for a few hundred dollars. Enterprise-grade drones for commercial use cost substantially less than military systems.
Enhanced Performance
Drones can handle stronger winds, fly longer distances, carry heavier camera payloads, and transmit high-definition video thanks to improvements in materials, batteries, motors and sensors.
Increased Ease of Use
Simple app and controller interfaces make modern drones easy to fly right out of the box. Auto take-off, landing and navigation features simplify piloting for recreational and professional use.
Accelerating Adoption
Businesses and government entities are recognizing the vast capabilities and cost savings drones offer for data gathering, monitoring, and analysis. More organizations are integrating drones into workflows.
Supportive Regulations
Governments are progressively establishing rules and airspace regulations for commercial drones while also funding development initiatives and pilot projects. This enables expanded civilian drone operations.
VC Funding Surge
Venture capital investment in drone startups has exploded recently, exceeding $4 billion in 2021 according to Pitchbook data. This reflects tremendous investor confidence in drones.
Tips for Investing in Drone Stocks
For investors, drones offer an extremely promising tech sector with multi-year growth potential as adoption accelerates further. Here are tips when evaluating drone investments:
- Focus on companies with clear competitive advantages, innovative products and proven management. Don’t simply chase the latest hyped concept alone.
- Seek a balance of stability and growth opportunities. Leaders like Boeing provide steady revenues while smaller drone makers can offer greater upside.
- Pay attention to software, sensors, chips and key components that enable drone tech. There are lucrative prospects beyond just airframe manufacturers.
- Consider indirect beneficiaries in supporting industries such as 5G infrastructure and defense technology.
- Factor in risks like regulatory changes, public perception, economic conditions and cyber vulnerabilities that may impact the market.
- Given the complexity, partnering with an expert advisor can help investors identify top prospects while mitigating risks.
Conclusion
Drones are transforming industries by providing invaluable aerial data and services more efficiently and cost effectively than ever before. From military missions to agriculture to cinematography, drones are reaching new heights with no signs of slowing down.
For investors, the drone sector offers enticing growth and diversification. While not without some volatility and risks, leading drone stocks and companies are well positioned in an industry poised to ascend dramatically in the years ahead. Carefully evaluating top prospects, trends and market factors will allow investors to stake the right claims in this 21st century gold rush. The sky is truly the limit with the possibilities drones represent.
Resources
Grand View Research Global Drone Market Size Report
Drone Industry Insights Drone Market Forecasts
AeroVironment Company Information
Kratos Defense Company Information