Needham Says There’s an Opportunity Brewing in These 2 Drone Stocks

Over the past two decades, aerial drones have rapidly shifted from niche technology to mainstream defense assets. What began as experimental tools has evolved into critical military applications, where drones now play pivotal roles in electronic and video surveillance, intelligence gathering, and precision-strike missions.

Defense departments worldwide are increasingly deploying drone technologies – the wars in Ukraine and the Middle East serving as current examples – and both established aerospace giants and emerging firms are racing to meet the growing demand.

That accelerating adoption has attracted Needham analyst Austin Bohlig, who notes the opportunities brewing. “We believe the domestic unmanned aerial systems (UAS) market is entering a multi-year supercycle, driven by a generational shift in defense priorities toward autonomous unmanned platforms… Led by the Trump’s Administration heightened priority for autonomous solutions, we estimate the FY26 DoD Budget and the One Big Beautiful Bill is allocating a record $15B+ to offensive and defensive unmanned systems… Outside of the DoD, we also see growing federal demand for drone and counterUAS solutions to secure borders and protect critical infrastructure,” Bohlig opined.

On the back of this thesis, Bohlig recommends two drone stocks that he believes are primed to benefit. But does the rest of Wall Street share his optimism? To find out, we turned to the TipRanks database.

Unusual Machines (UMAC)

We’ll start in the world of small-cap stocks, with Unusual Machines. This Orlando-based company got its start in 2019, and is focused on the acquisition and development of drone technology – particularly on first-person view, or FPV, tech. Early last year, Unusual Machines made two important acquisitions – Fat Shark, a firm that designs and manufactures the ultra-low latency video goggles used by FPV drone pilots and operators, and Rotor Riot, an e-commerce marketplace that deals mainly in drones and has built a large customer base of FPV pilots. These acquisitions gave Unusual Machines a foot in both camps – in the development and manufacture of drone technology and components, and in the sale of commercial FPV drones.

The company bills itself as a quirky innovator in the latest drone technology, and as a cutting-edge operator able to meet the varying needs of commercial and government (read – military) customers. Company management has noted that the drone industry is rapidly expanding in the US, and that much of its support is coming from Federal Government policy as embodied in laws such as the American Securities Drone Act, and from international conflicts such as the war in Ukraine. Unusual Machines is working to shift its supply chains and manufacturing bases toward American sources, seeing an increased demand for non-Chinese suppliers in the drone market.

To take advantage of that opportunity, the company has outlined a clear strategy. Unusual Machines plans to expand its customer base, building on the proven growth that Rotor Riot established in the last several years. Existing and new customers will be served with a product line with parts that are increasingly sourced from domestic suppliers; Unusual Machines is aiming to act as a component supplier to larger drone manufacturers, as a way of advertising the company’s own products and its expertise in the sector. Finally, Unusual Machines is working to develop and expand social media channels, new and existing, to promote its market presence. FPV drones are based in part on IoT technology, and their customer base has a heavy tech bent; these are features that the company can leverage to its advantage.

The company released its 2Q25 results on August 14, and showed quarterly revenues of $2.12 million, beating the forecast by over $312,000. However, UMAC ran a loss of 32 cents per share, 25 cents per share below expectations.

When we turn to Bohlig, we find the Needham analyst upbeat about Unusual Machines, citing geopolitical support for the drone industry as well as demand in the US for domestic drone sources. He writes of the stock and its potential, “We believe the U.S. is at the front end of an unprecedented investment cycle for small, low-cost UAS, as recent conflicts have highlighted the strategic value of First Person View (FPV) ISR and one-way attack attributable systems. To meet this demand, securing a U.S.-based supply chain from China for critical drone components has become a national priority, and we believe Unusual Machines is among the best-positioned domestic suppliers of flight-critical NDAA-compliant components to capitalize on this reshoring trend. Backed by a robust component portfolio, a new U.S. manufacturing facility ramp and strong Trump Administration ties, we see UMAC well-positioned to capture share in the ~$620M U.S. component market and drive substantial growth.”

Bohlig goes on to rate UMAC shares as a Buy, with a $15 price target that suggests a one-year upside potential of 47.5%. (To watch Bohlig’s track record, click here)

Overall, despite flying under Wall Street’s radar, UMAC has managed to impress the two analysts who cover it; both rate the stock a Buy, resulting in a Moderate Buy consensus. At its current price of $10.17, their $15.50 average target suggests a potential 52% upside over the next 12 months. (See UMAC stock forecast)

AeroVironment (AVAV)

Next on our list is an established drone company, AeroVironment. This firm, based in Arlington, Virginia, is a well-known supplier of drones and drone technology – and in fact, is one of the chief suppliers of man-portable aerial drone systems for the US military. AeroVironment’s product lines include unmanned aerial vehicles (UAVs) and uncrewed aircraft systems (UASs), as well as unmanned ground vehicles (UGVs) and high-altitude pseudo-satellites (HAPS). The company’s drones are mainly used for long-term reconnaissance missions, but some models are designed as loitering munition systems (LMSs) that are able to provide battlefield fire support for both offensive and defensive operations.

AeroVironment has a portfolio of proven solutions for unmanned aircraft and vehicle operations, based on the operational lessons derived from delivering more than 50,000 autonomous systems to active-duty customers. The company has designed these proven systems to fill the evolving needs of the modern defense industry, and its innovations are informed by a combination of deep expertise and successful battle experience. In the company’s words, it builds ‘solutions that work.’

In addition to its technological expertise, AeroVironment knows that it cannot stay at the leading edge if it does not continue to innovate, to release new products, and to secure new contracts. In recent weeks, the company has announced several moves in this direction.

First, its Wildcat UAS has met a new set of development milestones in the DARPA Early VTOL Aircraft Demonstration, or EVADE, program. Wildcat has shown successful capabilities in switching from VTOL to forward flight and in validating its core flight and propulsion systems, and is now on track to integrate mission payloads.

Next, AeroVironment announced its Skyfall project, developed in conjunction with NASA’s prestigious Jet Propulsion Laboratory. This project is aimed at developing the next generation of helicopter drones designed for operations on Mars. This is considered an essential technological innovation for future exploration of our neighboring planet. The project aims to have a Mars-capable drone available for deployment by 2028.

Finally, on August 7, AeroVironment and the global aerospace and national security company SNC announced that they had entered into a strategic partnership aimed at defining and building the multi-domain capabilities that will inform the integrated, open-architecture air and missile defense systems that will be needed to support the Golden Dome for American (GDA) initiative. GDA is a Trump Administration proposal aimed at providing a last line of defense in the US against air or missile attacks from adversaries.

We should also note here that, on the first of May, AeroVironment completed an important merger transaction, the $4.1 billion acquisition of BlueHalo. By making this acquisition, AeroVironment has expanded its product portfolio, along with its ability to provide its customers with a wide range of unmanned vehicle systems.

AeroVironment’s shares have been on an upswing since early April, and in late June the company got a large boost when it released its fiscal 4Q25 financial results. That report showed quarterly revenue of $275 million, a figure that was up 40% year-over-year and beat the estimates by over $33 million. The company’s bottom-line figure in the quarter, reported as a non-GAAP EPS of $1.61, beat the forecast by 22 cents per share. For the full year, AeroVironment’s reported revenue came to nearly $821 million, for a 14% increase from fiscal year 2024.

We’ll check in again with Needham’s Bohlig, who is bullish on this stock. Bohlig says of the company, “We believe AeroVironment has long been an industry leader in defense grade small UAS and loitering munitions, which has led to robust growth over the last decade. Following its acquisition of BlueHalo, we believe the company has evolved into a leading next-generation defense prime, positioned at the center of the fastest-growing technologies in modern warfare. We believe the AV bolstered portfolio is strongly aligned with the unprecedented global defense spending initiatives, led by the Trump administration’s historic $15B+ defense unmanned spending inflection. Driven by expanding TAM, continued share gains from traditional defense primes and increasing manufacturing capacity, we believe AV is uniquely positioned to see industry leading growth. Coupled with expanding EBITDA margins and improving free cash flow, we see further upside potential for multiple expansion.”

Bohlig puts a Buy rating on AVAV shares, along with a $300 price target that implies a 12-month gain of 20.5%.

This stock has earned a Strong Buy consensus rating from the Street’s analysts, based on a unanimous12 Buys. The shares are priced at $248.93 and the $295.55 average price target points toward a 19% upside over the next 12 months. (See AVAV stock forecast)

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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.