Drone stocks provide exposure ranging from delivery to military.
The global drone industry is projected to grow 12.3% annually, nearing $41 billion by 2027, according to Brandessence Market Research. Just a few years ago, drones were still considered science fiction. However, today there are about 322,000 commercial drones and more than 529,000 recreational drones registered with the U.S. Federal Aviation Administration. The U.S. Department of Defense also operates more than 11,000 unmanned aircraft systems, or UAS, used for surveillance, data collection and precision military strikes. To profit from the rise of the drone era, analysts say these seven drone stocks make excellent investments.
Boeing Co. (ticker: BA)
Defense stocks have gotten a boost since Russia invaded Ukraine. In the fourth quarter, Boeing generated $5.9 billion in defense, space and security revenue, which made up about 40% of its total revenue. Boeing produces a number of unmanned and autonomous technologies, including its ScanEagle, Integrator and MQ-25 drones. Morningstar analyst Burkett Huey says Boeing’s narrow-body business has taken a hit from the extended grounding of its 737 MAX. However, he says global demand growth, particularly in emerging markets, will return as the world emerges from the COVID-19 pandemic. Morningstar has a “buy” rating and $249 fair value estimate for BA stock, which closed at $188.99 on March 16.
Nvidia Corp. (NVDA)
Nvidia’s high-end graphics processing unit, or GPU, chips provide the processing power for a wide range of cutting-edge technologies, including online gaming, artificial intelligence, cloud computing, the metaverse, autonomous vehicles and drones. The Nvidia Jetson platform provides engineers the tools needed to develop artificial intelligence-powered robots, drones and other autonomous machines. Bank of America analyst Vivek Arya says the world is still in the early days of AI adoption. He says AI will continue to drive between 30% and 40% of annual growth for Nvidia’s data center business. Bank of America has a “buy” rating and $375 price target for NVDA stock, which closed at $244.96 on March 16.
Lockheed Martin Corp. (LMT)
Lockheed Martin is one of the largest U.S. defense contractors. The company has a deep portfolio of sophisticated unmanned systems used by the U.S. military by air, land and sea. Popular Lockheed products include the Indago 3 unmanned aerial vehicle, the Condor XEP UAS and the Stalker UAS. CFRA analyst Colin Scarola says there is a high likelihood that U.S. defense spending will jump following the Russian invasion of Ukraine. Lockheed’s stock is up about 20% year to date, but Scarola says there is more upside ahead. CFRA has a “buy” rating and $515 price target for LMT stock, which closed at $421.34 on March 16.
Amazon.com Inc. (AMZN)
Drones may soon play a central role in Amazon’s e-commerce business. Amazon is currently developing Prime Air, its delivery service of the future that the company says will deliver packages weighing 5 pounds or less in under 30 minutes using small drones. There is no timetable for the launch of Prime Air, but Amazon received a Part 135 Air Carrier Certificate from the FAA in August 2020. Morningstar analyst Dan Romanoff says Amazon Web Services and advertising will be the largest long-term growth drivers for Amazon. Morningstar has a “buy” rating and $4,100 fair value estimate for AMZN stock, which closed at $3,062.08 on March 16.
Northrop Grumman Corp. (NOC)
Northrop Grumman is one of the world’s largest weapons and military technology producers. Northrop offers a number of UAVs, autonomous systems and other products designed to help customers meet a wide variety of missions. Top Northrop unmanned products include the MQ-4C Triton UAS, the RQ-4 Global Hawk UAS and the MQ-8B and MQ-8C Fire Scout autonomous helicopters. Bank of America analyst Ronald Epstein says Northrop and other defense stocks should have significant valuation upside as U.S. and European defense budgets rise following the Ukraine conflict. Bank of America has a “buy” rating and $540 price target for NOC stock, which closed at $424.43 on March 16.
Ambarella Inc. (AMBA)
Ambarella develops semiconductor processing solutions for high-definition video capture, sharing and display. The company’s advanced computer vision features include obstacle avoidance, target tracking and fully autonomous navigation. These features are helping transform drones from fun novelties to indispensable tools for business and recreation. CFRA analyst Keven Young says Amarella has large, long-term growth opportunities in both the surveillance and autonomous technology markets. Recent deals with electric vehicle maker Rivian Automotive Inc. (RIVN) and fleet management company KeepTruckin reinforce Young’s bullish outlook, and he says Ambarella’s home security camera business is gaining traction. CFRA has a “buy” rating and $180 price target for AMBA stock, which closed at $94.97 on March 16.
Google and YouTube parent company Alphabet also owns Wing, the world’s first on-demand drone delivery service. Wing currently delivers parcels via drone in four pilot locations: Christiansburg, Virginia, in the U.S.; Helsinki in Finland; and Logan and Canberra in Australia. Morningstar analyst Ali Mogharabi says there are plenty of reasons for investors to love Alphabet’s core search and advertising businesses. He says Alphabet will further monetize YouTube and use that cash flow to develop its moonshot growth projects, such as Wing. Morningstar has a “buy” rating and $3,600 fair value estimate for GOOGL stock, which closed at $2,665.61 on March 16.
These seven drone stocks have long-term profit potential:
— Boeing Co. (ticker: BA)
— Nvidia Corp. (NVDA)
— Lockheed Martin Corp. (LMT)
— Amazon.com Inc. (AMZN)
— Northrop Grumman Corp. (NOC)
— Ambarella Inc. (AMBA)
— Alphabet Inc. (GOOG, GOOGL)
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