This is an excerpt of a piece originally written for MarketWatch.com. Read the entire story here.
One American drone maker’s stock is flying especially high this year.
Shares of Los Angeles-based AeroVironment, which makes drones for military and enterprise customers, are up 81% this year and 102% in the past 12 months. That was boosted by a 9% rally after AeroVironment reported better-than-expected first-quarter earnings last month.
While Chinese drone maker DJI has crushed much of the competition for consumer drones, commercial drone makers are finding success, especially in military and enterprise applications.
AeroVironment, which makes drones both for reconnaissance and as lethal weapons, is increasingly turning to small drones, about the size of a water bottle.
“The demand for our small UAS products and solutions internationally is strong and continues to be strong,” AeroVironment Chief Executive Wahid Nawabi said during the company’s quarterly earnings call last week.
Aerovironment has delivered 30 of its Snipe drones to the U.S. Department of Defense. The 5-ounce, cell phone-sized camera drone has motors so quiet that it is difficult to detect, and is used for reconnaissance. AeroVironment sells its drones to 40 other countries, and this quarter signed contracts with the Australian military and an unnamed Middle East customer.
“We are impressed with continued international demand for small UAS,” analysts at Raymond James said in a note last week.
Another drone maker focused on enterprise and defense, Israeli-based Airobotics, announced on Thursday that it had nabbed $32.5 million in funding.
Meanwhile, China’s DJI has been the subject of controversy recently after a leaked memo indicated that the U.S. Army would discontinue using its drones due to “cyber vulnerabilities.” Some drone service providers have also said their clients will not allow them to use DJI products because of related security concerns. And while DJI has a massive market share in the consumer market, those security concerns could be an opportunity for other drone makers to leap into the commercial side of the market.
“Our small UAS solutions are designed to be highly secure and reliable,” AeroVironment’s Nawabi said, in reference to the DJI news.
The U.S. Army later clarified that it could continue using DJI drones if the software passes a security check. DJI also followed up on the news by releasing a new flight mode that stops internet traffic to and from the app that operates it, in order to provide enhanced data-privacy assurances for sensitive government and enterprise customers.
Nawabi indicated that recent rulings by the Federal Aviation Administration are holding back aspects of the commercial drone market. The FAA currently does not allow commercial pilots to fly at night, over people, or to fly drones beyond their line of sight without special permission.
So while a farmer might be able to fly a drone over their farmland, an electric utilities company that has thousands of miles of transmission lines would not be able to legally use a drone.
“The FAA will play, and is going to play, a critical role as an enabling factor for the adoption of this market,” Nawabi said.
There are more than 60,000 licensed commercial drone operators in the United States, according to the FAA. The FAA said in a statement Wednesday that it “is using a risk-based approach to enable increasingly more complex UAS operations,” but added that current restrictions on commercial drone use would likely be eased.