Best drone stocks to watch

Top 5 drone stocks to watch

1. AeroVironment Inc (AVAV)
2. Sony Corp ADR (SNE)
3. NVDIA (NVDA)
4. Amazon (AMZN)
5. Microsoft Corm (MSFT)

We’ve compiled a list – in no particular order – of some of the drone stocks that have become popular among traders, either to take a long position in anticipation of price rises or to short the company in periods of decline.

There are a few different ways that you can get exposure to the rise of drone technology, but the two main ways are through companies that produce drones – whether this is software or hardware – or the companies that might benefit from the technology.

AeroVironment Inc (AVAV)

AeroVironment Inc (AVAV) is a defence drone manufacturer that focuses on the supply of unmanned aerial vehicles (UAVs) to government agencies. It is one of the only companies that has drones as its principle line of business.

AeroVironment listed on the NASDAQ stock exchange in February 2007 – its stock began trading at $17.00 per share and the intial public offering (IPO) raised a total of $113.90 million. In September 2018, shares of AeroVironment had reached a high of $116.00 per share, before falling back to $64.00 due to the global stock market sell-off in the last few months of the year.

The NASDAQ announced that AeroVironment was predicted to grow at an average rate of 25% per annum for five years¹, but it remains to be seen whether this is sustainable – especially amid declining product sales and reports of a 7% drop in AeroVironment’s gross margin.²

Going into 2019, the US governments’ drone budget allocation is expected to rise. And although not all of this will go to AeroVironment, the company could experience some growth off the back of it as one of the US Pentagon’s top suppliers of small drones.

Sony Corp ADR (SNE)

Sony Corp (SNE) is famous for its electronics, such as TVs and gaming consoles. But in 2015, Sony announced that it was teaming up with a Tokyo-based robotics company, ZMP Inc, to create drones for commercial and retail use – the joint venture was called Aero Sense.

Shares of SNE rose following the announcement, from $24 in early August, up to $28 by the end of the month. Since the product launch, the Aero Sense drones have become a favourite of amateur photographers all over the world.

However, the success of Sony’s drones is not the only factor impacting the company’s share price. It is therefore important that traders and investors remain aware of the overall health of Sony when looking at opportunities for going long and going short.

NVIDIA (NVDA)

NVIDIA (NVDA) is probably better known for its work creating graphic processors for video games, but it also produces artificial intelligence (AI) solutions for drones. Plenty of firms have been vying for a slice of the AI pie, but NVIDIA is already well established in the market.

NVIDIA’s AI technology was intended to power driverless vehicles, but it went unnoticed by many investors until it was used for drone production. In March 2017, the company began shipping out its platforms to be included in ‘edge devices’ – hardware that controls data flow – such as drones. By September of the same year, Chinese retailing giant JD.com and general electric company Avitas had started to use NVIDIA’s tech to operate its drones. And because JD is partially a subsidiary of Wal-Mart, that could offer the business a route into the wider market.

However, a press release in January 2019, revealed the company was expecting fourth quarter (Q4) revenue of $2.20 billion, which is 18.5% less than its previous $2.70 billion estimate.³ The announcement saw a 19% drop in NVIDIA’s share price, which reached a low of $133.00 per share – 51% less than its all-time high of $277.00 in October 2018.

Amazon (AMZN)

Amazon (AMZN), the online retail giant, first expressed interest in drone technology in December 2013, when it announced plans to use drones to deliver packages. The service was named ‘Amazon Prime Air’. At the time, many thought chief executive officer (CEO) Jeff Bezos’s plans were the stuff of science fiction but, as drone tech continues to advance, other companies have jumped on the trend and started to test drones.

Amazon is not involved in producing drone hardware or software, but it is set to reap the rewards if drones are approved for commercial deliveries. The service could lower delivery costs, which would increase the company’s profits. Its cloud computing service could also benefit from the rise of drone tech, as it becomes used as a storage system for the UAVs.

We are yet to see Amazon Prime Air come to fruition, but it goes without saying that Amazon is far more than its futuristic delivery services. The company has seen successes in e-commerce, video streaming services and cloud computing.

In September 2018, AMZN stock reached an all-time high of $2050, pushing the company’s valuation above $1 trillion. But the rapid growth caused concern about the company’s valuation, and Amazon shares fell back amid the global market sell-off. As of January 2019, shares of AMZN were trading around the $1620 level.

Microsoft Corp (MSFT)

Microsoft Corp (MFST) is a large player in the cloud computing market, with its range of services including the Azure platform and cloud-based Office 365 programmes. Microsoft Azure is constantly looking to push the boundaries of the cloud tech market, which led it toward drone technology.

In May 2018, Microsoft announced that it would be entering into a strategic partnership with DJI – a civilian drone and aerial imagery tech company. The alliance would release a software kit that combines the power of commercial drone technology, with Microsoft’s AI and cloud computing services.

Shares of Microsoft had risen by more than 17% between May and September 2018 – from $97 up to $114 – but fell back during the stock market sell-off later that year. Like many of these companies, Microsoft’s business is not solely drone focused, which means that anyone speculating on its share price must take into account its multi-faceted business model.

Drone investments: what you need to know

The market for drones – or UAVs – is expected to be worth $13 billion by 2025.⁴ In the UK alone, it is estimated that there will be 76,000 drones operating by 2030.⁵

As the drone industry continues to develop, businesses and public services are rushing to adapt to the impact that the technology have. The military have been using drones for years for policing and surveillance purposes, but their civilian use has increased in recent years – drone applications now include humanitarian, commercial, scientific and recreational activities.

However, drones have had a lot of bad press due to concerns over user responsibility, health and safety. For example, during the Christmas period in 2018, drones were seen flying in the airspace over Gatwick airport, which impacted over a thousand flights. The public perception of drone technology is an important factor in assessing the health of the drone industry, as there is the potential for regulation to impact the sector’s growth.

Keep up to date with the latest industry updates with our news and trade ideas

How to take a position on drone stocks

There are two ways that you can get exposure to drone stocks: investing and trading. Your decision about which route you will take should depend on your overall strategy and preferences in terms of time allocation and available capital.

How to invest in drone stocks

If you want to take a longer-term view of the industry, you might choose to invest in the shares of companies associated with the drone boom.

Investing in drone stocks involves putting up the full value of your position upfront, with the expectation that the shares will rise in price, and you can sell them at a later date for a profit. Along with receiving physical shares in the company, you would receive shareholder rights and dividends if they were paid.

How to trade drone stocks

Alternatively, you might decide to speculate on the price of drone stocks via derivative products, such as CFDs. Traders generally take a shorter-term view of the markets, seeking to profit from smaller and more frequent market movements.

While periods of decline might be cause for concern for investors, for traders market downturns can open up a wide range of opportunities for short-selling stocks. When you trade drone stocks, you don’t take ownership of the shares, which means that you can profit from markets that are falling in price, as well as those that are rising.

CFD trading are also leveraged products, so you would only need to put down a small initial deposit in order to gain full market exposure. Leverage has the potential to make your money go a lot further, as profits can be magnified but it also has the potential to magnify losses. This makes it important to have a suitable risk management strategy in place before you start to trade drone stocks.

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¹ Nasdaq, 2019

² AeroVironment Inc, 2018

³ NVIDIA, 2019

⁴ Statistica, 2018

⁵ PwC, 2018