Unmanned Aircraft Growth and the Drone Company Stocks to Watch
Want to learn more about the drone market, an exciting and rapidly-evolving segment of the technology sector? This article will outline the evidence for potential growth in this field and then move on to discuss several drone stocks that could be well-positioned to benefit.
We'll also cover the trends that hint at the potential for rapid drone technology growth in the future, including existing growth forecasts, and military spending. Additionally, we'll list the companies that are most likely to benefit, including drone manufacturer stocks, drone technology stocks, and military drone stocks.
In recent years, drones have become increasingly familiar devices for uses such as photography and videography — or simply as toys — but the applications for autonomous aerial vehicles are extremely far-ranging, with the potential to revolutionise certain fields.
Crucially, drones now open up places that were previously extremely impractical or dangerous to access, and this is of huge interest for the military, in terms of surveillance and ordnance delivery, and heavy industry, in terms of inspection and repairs. For potential investors and traders, this interest opens up a lot of opportunities for investing in and trading drone company stocks, not to mention the stocks of related companies that will be boosted by the growth in this industry.
FAA Drone Forecasts
When it comes to non-military applications, what the future holds for drone manufacturing stocks may well hinge on how loose, or how tight the regulatory environment proves to be. Projections made by the Federal Aviation Administration (FAA) point to strong growth ahead though.
The FAA forecasts that the number of drones (which it refers to as Unmanned Aircraft Systems) will grow rapidly over the next few years, with growth more modest after that, as the market approaches saturation. These are its forecasts for the 'non-model' sector of drones, which it identifies as being mainly commercial in nature and at an early-growth stage:
Percentage Increase From Previous Year
Percentage Increase From Previous Year
The data presented in the table is sourced from the FAA's Forecasts for Unmanned Aircraft Systems. As you can see, the FAA offers two different sets of forecasts. One is its base forecast, which can be thought of as its most likely scenario. The high forecast is its more aggressive projection, reflecting the potential for business opportunities opening up and driving further growth.
The cumulative growth rate for the base forecast is 33%, while the high forecast is 46%. In any case, predicted growth is high, which means that there is lots of opportunity for traders and investors alike.
Beyond the FAA drone forecasts, the US Department of Defense (DoD) plans to massively ramp up government spending in the area of drones, based on its defense budget. According to a study by the academic body for the Center For The Study of the Drone, the fiscal year 2019 budget proposes the acquisition of over 3,000 new drones, compared with 807 for the fiscal year 2018, involving drone-related spending of approximately $9.39 billion.
Given these spending plans, let's first focus on a couple of military drone stocks that might potentially stand to benefit:
Boeing — Unmanned Military Aircraft
First is Boeing (ticker BA). Boeing is a household name, being one of the component DJI stocks. This aerospace company is a giant multinational, with a market cap of $198.5 billion, so not normally a name you might necessarily align with rapid growth.
The company is a defence contractor in the United States, though, with its Boeing Defense Space & Security (BDS) segment involved in the development and production of unmanned military aircraft and weapons systems.
This, therefore, makes the company well-placed to take advantage from increased government spending in these areas. The stock has also paid a generous dividend relative to its sector over the last few years: According to Reuters, Boeing's 5-year average dividend yield was 2.43% at the time of writing, compared to 1.56% for its sector.
Northrop Grumman — Modernising Defence Systems
Another military supplier that operates in similar areas to Boeing is Northrop Grumman (ticker NOC). Northrop Grumman has a market cap of $47.5 billion, and operates two segments of relevance in terms of the US DoD, seeking to upgrade and expand its drone fleet. Northrop Grumman's Autonomous Systems segment already provides the X-47B drone to the US Navy, which accomplished the first ever autonomous refueling of an unmanned aircraft.
Furthermore, the company's Technology Services segment is aimed at modernising defence systems, including logistics support for unmanned weapon systems. In late November 2018, the Pentagon announced that Northrop Grumman had won a $490 million contract to sell its Global Hawk surveillance drone system to Japan.
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Aerovironment — Light Drone Manufacturer
Staying within the sphere of defence drone manufacturers stocks, it's also worth considering that a company that with a more concentrated focus on unmanned aerial vehicles (UAVs) is Aerovironment (ticker AVAV).
With a market cap of $2.3 billion, Aerovironment is a much smaller company compared with Boeing or Northrop Grumman, but it is a key supplier of small drones to the US Defense Department, including its Raven, Wasp and Puma UAVs, which can wirelessly transmit live reconnaissance data to troops on the ground.
Aerovironment received a $3.2 million contract in November 2018 from the US DoD to provide its Puma drone system to a US ally in the Indo-Pacific region. Aerovironment's share price has been impressive in 2018, rising an incredible 60% from the start of the year through to late November.
Of course, if military-leaning stock plays aren't your thing, there are still plenty of avenues that you might potentially exploit in the growth area of drones, for example, by focussing on stocks that provide drone technology. There's a number of ways to slice the pie, from drone tech stocks making essential components, to those that provide the CPU's and software required for complex automation.
Let's explore a few of them in greater detail:
Ambarella — Drone Imaging Solutions
Ambarella (ticker AMBA) is a component builder and a much smaller company compared with the two aerospace behemoths discussed earlier. It has a market cap of $1.7 billion, and is what we might normally label a 'growth company', paying no dividends, with a 5-year sales growth rate of 26.12%, according to Reuters.
This company specialises in low-power, HD imaging, offering solutions for video processing and system functions all combined on one single chip. In other words, just the kinds of thing that can be found in many types of drone, as well as in other related areas, such as long-operation wearable cameras for police and security markets.
Nvidia — AI Tech for Drones
Drones are not just increasingly complex machines, but are also required to perform increasingly complex tasks. It follows, then, that there is a need for Artificial Intelligence (AI) in such drones. Many technology companies dip their toes in AI for various reasons, from Apple through to Facebook, but one that has a particular leaning towards AI for drones is Nvidia (ticker NVDA).
Nvidia is perhaps better known for its work creating graphics processors for the PC gaming world, but the company also utilises its technology in the area of computing platforms that learn from unstructured data. Specifically, its low-power Jetson platform offers an AI solution for drones. The company describes this platform as the 'world's leading embedded AI computing platform'.
Nvidia has also developed an AI driving chip, intended for use in the experimental area of autonomous driving, and in November 2018 announced a number of deals with Chinese electric auto-manufacturers. Nvidia is a large, well-established company with a market capitalisation of $121.2 billion, and has demonstrated rapid earnings growth in recent years. It has a 5-year earnings growth rate of 38.64% (according to Reuters), far exceeding the 4.24% average for its industry.
Drones — The Path Ahead
Like any fast-growing, fast-changing industry, the competitive cut and thrust required to keep up with the evolution of the sector may mean that some players in the drone market fall by the wayside in the years ahead — but there is the potential for great rewards for those that flourish. If you like the look of any of these stocks, you can take the next step to investing in the world of drones by opening an investing account with Admirals today. Click on the banner below to get started!
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Disclaimer: This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.