What Are The Best Drone Stocks To Buy?
Advances in technology offer exciting investment opportunities. Investors who saw early potential in Google [NASDAQ: GOOGL], Apple [NASDAQ: AAPL], Facebook [NASDAQ: FB] and Netflix [NASDAQ: NFLX] enjoyed substantial returns on their stock purchases.
Of course, pinpointing which new technology is poised for massive growth – and which company is best positioned to bring that technology mainstream – is a challenge. Newer technologies mean new and often high risks. Drone stocks fall squarely into that category these days.
Though still in the early stages, the possibilities for mainstream applications appear endless. From crop inspection to pizza delivery, organizations in almost every industry are examining whether and how drones can increase efficiency and provide a better experience for consumers. So what are the best drone stocks to buy?
The Pros and Cons of Investing in Drone Stocks
The use of drones isn’t a new phenomenon. For decades, governments around the world have relied on unmanned aerial vehicles (UAVs) for defense purposes.
In fact, the earliest pilotless vehicles made an appearance in World War I. However, until recently, only militaries had access to this equipment.
As the cost of producing drones has decreased and the underlying technology has advanced, a variety of companies have started to explore non-military applications for drones.
Some of the most exciting opportunities include using drones for hazardous jobs like firefighting and search and rescue.
The primary obstacle to widespread personal, commercial, and industrial use is government regulations, but these seem to be loosening. If and when laws related to drones are relaxed, there is no limit to this industry’s growth.
Research from Gartner shows there is plenty of demand.
From 2016 to 2017, production of personal and commercial drones increased 39 percent, and revenues exceeded $6 billion.
Gartner predicts that revenues will continue to climb, reaching more than $11.2 billion by 2020.
Projections from The Association for Unmanned Vehicle Systems International (AUVSI) are even more optimistic. If all goes as expected, AUVSI analysts believe more than 100,000 jobs will be created by 2025, and the total economic impact will exceed $82 billion.
If the analysts are even close to being right, now would seem to be an optimal time to invest in drone stocks. However, there are a risks. The most critical involves regulatory concerns. While analysts expect changes in drone-related laws, it isn’t clear how these laws will change.
Drones also come with a host of safety and security issues that are not easily resolved.
For example, technology failures and user errors could threaten commercial air traffic, and there is a potential for personal injury and property damage when drones fail.
Plus, there are a variety of questions around the impact drones might have on privacy. It wouldn’t be surprising for new regulations to include licensing and liability insurance requirements, which could limit the widespread rollout of this technology.
How To Invest In Drone Technology
If you have determined that this is the right time to add drone technology to your investment portfolio, there are two primary ways to move forward.
The first option is to invest in companies that stand to benefit from increased revenues as a result of drone technology. For example, companies like Amazon [NASDAQ: AMZN], Wal-Mart [NYSE: WMT], and Google [NASDAQ: GOOG] are looking at opportunities for improving package delivery service through the use of drones.
Amazon was first to suggest this idea. In 2013, the company announced it was experimenting with 30-minute drone delivery of orders weighing five pounds or less going to customers located within 10 miles of a fulfillment center.
At the time, few people took this proposal seriously, but today, Amazon has a test program in place for certain UK customers.
Investors interested in profiting from drone technology may wish to put their money into a company that stands to benefit from the integration of drones into day-to-day business activities.
The alternative is to invest in drone technology directly by purchasing shares of companies that stand to profit from increased drone-related revenue.
This may include companies working on improvements to technology – particularly artificial intelligence (AI) – or those that actually design and sell components or finished products.
Is AeroVironment a Buy or a Sell?
Drone manufacturer AeroVironment [NASDAQ: AVAV] is a leader in the industry, particularly when it comes to drones intended for military use and drones to increase farming effectiveness and efficiency.
AeroVironment [NASDAQ: AVAV] produces drones for the US defense, and it has contracts with a number of allied governments. This company was tapped to work with NASA on the first drone to fly on Mars, and AeroVironment drones offered key support in managing the December 2018 wildfires in California.
From a numbers perspective, AeroVironment [NASDAQ: AVAV] is currently sending mixed signals.
Second fiscal quarter earnings came in above expectations, but sales came in below prediction.
Profits were down over the same period last year, and it appears that the company’s profit margin is shrinking. Due to concerns over these figures, share prices dropped significantly in November of 2018.
The lower share price presents an opportunity for investors who are confident that AeroVironment will regroup, re-strategize, and resume its position of leadership in the industry.
Those that aren’t sure AeroVironment is the right choice may wish to consider Nvidia.
Top Drone Stocks: Should You Invest In Nvidia?
Some of the best graphics processing units in the gaming industry come from Nvidia [NASDAQ: NVDA], and this company has rewarded investors with substantial profits in recent years.
Less well-known but perhaps more exciting is Nvidia’s advancements in deep-learning platforms for Artificial Intelligence.
This technology enables machines to learn from data, so that they can make inferences and decisions based on available information.
At the end of 2018, Nvidia hit a stumbling block in its gaming unit, and analysts are expecting losses for a quarter or two while the company sorts out its strategic misstep.
However, the continued potential for advances in other segments of the company could mean significant benefits for investors. Some may choose to buy now or in the near future, while more skittish shareholders sell off at the first sign of trouble. This means lower share prices and increased reward if and when the company recovers.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.