How to Capitalize On The Growing Drone Market

Remember the old “get your pizza delivered in 30 minutes or it’s free” promotions?

As it turns out, Pizza Hut and Dominoe’s are taking it to a whole new level by testing drone deliveries. I’m not kidding.

These speedy flying machines can travel as the crow flies, avoiding traffic and red lights. They can also expand restaurants’ delivery zones and cost significantly less than human drivers.

It remains to be seen whether autonomous airborne delivery is economically viable on a large scale. One of the biggest obstacles is perfecting safety protocols and convincing the Federal Aviation Administration (FAA) to loosen restrictions and grant flight clearance around neighborhoods, bridges, buildings, and other crowded airspace.

But if anyone can pull it off, then it’s probably Amazon. After a decade of work, the retail giant plans to make 10,000 front porch deliveries in California and Texas this year.

Walmart has already completed 10,000 deliveries since 2021 from 36 participating stores across seven states. The program offers 20,000+ eligible items for drone delivery. Partnering with Wing (a division of Google), two new Wal-Mart supercenter locations near Dallas are now dispatching drones that can serve 60,000 households within a six-mile delivery radius.

With stores and warehouses blanketing 90% of the U.S. population, you can see why Wal Mart and Amazon are eager to explore new ways to cut shipping expenses.

A New Era For Drones

It wasn’t that long ago that backyard remote-control enthusiasts were the only ones with drones. While they remain popular with hobbyists, commercial use has exploded and continues to grow. There are currently 352,222 commercial drones registered with the FAA. Courier service is just one of many commercial applications.

Here are some of the most notable:

— Broadcasters deploy drone cameras for unique birds-eye vantages at sporting events (I watched drone footage of the World Series). Hollywood filmmakers rely on them for some of the most pulse-pounding action sequences, including scenes from the James Bond and Star Wars franchises.

— Firefighters use thermal imaging and heat-sensing drones to monitor and help control wildfires without having to send people into harm’s way. They can also aid in urban search and rescue missions and crowd surveillance. More than 900 local first responders are now using them.

— Farmers dispatch drones to identify pest infestations and nutrient deficiencies to optimize crop yields. They can also spray agricultural fertilizers and pesticides.

— Realtors use high-resolution cameras at any angle to get detailed aerial photographs (and video) of residential and commercial properties.

— Drones outfitted with Light Detection and Ranging (LiDAR) technology can help with aerial mapping and surveying. They are used for construction, mining, and environmental management projects.

This list is by no means all-inclusive. Drones have become indispensable from law enforcement to civil engineering to offshore oil and gas production.

That burgeoning demand has turned this former niche into a mainstream $11 billion market. That’s just hardware, not service revenues. According to Insider Intelligence, unit sales will reach 2.4 million globally this year. While forecasts vary, Grandview Research predicts 14% compounded annual growth through 2030. Fortune Business Insights sees a more optimistic 25% growth rate.

Drones Are A Key Part Of Next-Gen Warfare

The earliest drones were developed for military use over a century ago. They remain quite popular with the top brass today.

Over the past five years, the CIA and the Pentagon have conducted drone strikes in Iraq, Afghanistan, Yemen, Syria, and other hostile nations. The preferred nomenclature is unmanned aerial vehicles (UAVs) or unmanned aircraft systems (UASs). Whatever you call them, these rugged, high-tech instruments serve all kinds of military functions.

Surveillance… reconnaissance… target acquisition… non-lethal scouting missions. Acting as eyes in the sky, drones can hover over a spot and provide real-time intelligence on enemy troop positions and surrounding terrain quicker and easier than waiting for an overhead satellite to pass. They can also drop off emergency supplies and equipment.

There are three basic types of UAVs: fixed-wing (like a conventional airplane), single-rotor (like a helicopter for vertical takeoffs and landings), and multi-rotor (for maximum control). In any case, they are cheaper to operate and maintain, don’t need runways or fuel, and can engage the enemy without risking lives.

According to the Department of Defense (DoD), there are currently 11,000 UAVs in service among the four branches of the U.S. military. Many are used for training purposes, with others deployed in combat zones across the globe. They range in size from just a few pounds to the Global Hawk/Triton, which weighs 32,000 pounds (and can cost $18,000 per hour to operate).

As Global Tensions Escalate, So Will Demand For Drones

Specialized UAVs can carry missiles, guided bombs, and other ordnance controlled by advanced targeting software to take out the smallest of targets with pinpoint accuracy. This 21st-century technology has changed the face of modern warfare. Long gone are the days of old-fashioned carpet-bombing runs, especially in areas with high civilian populations.

While cost-effective, the world’s military powers still spend colossal sums on drones, approximately $12 billion last year – larger than the commercial market. This has become an increasingly sizeable line item on the annual DoD budget. Outside the U.S., dozens of friendly allied nations such as Turkey and the United Kingdom have built robust UAV capabilities.

This latest evolution of battlefield tactics has been on full display lately following Russia’s invasion of Ukraine. Barely a day goes by without news reports of Russian drones attacking an oil refinery or a power plant. Ukrainian troops outfitted with their own drones supplied by the U.S. have held their ground against superior forces and managed counterstrikes. Most recently, they launched waves of UAVs that hit airports near Moscow and Russian naval ships in the Black Sea.

Meanwhile, the conflict between Israel and Hamas (which has now claimed 10,000 lives) isn’t letting up. Both sides have made drones part of their arsenal and are now girding for the next phase of this ugly fight. The crisis has destabilized the Middle East, putting defense stocks in the spotlight.

Action To Take

I’ve compiled a list of six stocks that have substantial involvement with drone production. If you think (like I do) that demand for drones is going to grow substantially, then this is where you should start…

Kratos Defense & Security (Nasdaq: KTOS), Ambarella (Nasdaq: AMBA), AeroVironment (Nasdaq: AVAV), Northrop Grumman (NYSE: NOC), Lockheed Martin (NYSE: LMT), RTX Corp. (NYSE: RTX).

I believe each of them is worth further investigation, so feel free to use them in your own research

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