This Defense Stock Could Be the Next Palantir. Should You Buy It Now?
What is this high-potential company? AeroVironment (AVAV).
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Founded in 1971, AeroVironment initially focused on lightweight human-powered and solar-powered aircraft. Virginia-based AeroVironment (AVAV) has since evolved to focus on unmanned aerial vehicles (UAVs) and advanced defense technologies.
With a market cap of nearly $7.7 billion, AVAV stock has rallied 85.4% on a year-to-date basis. The near term has been spectacular, with shares up more than 120% over the past three months and more than 45% in just the past five days.
Is Jim Cramer right? And if so, how much farther can AeroVironment fly?
A key aspect of the recent bullishness around the stock has been its blowout numbers for its fiscal Q4. AeroVironment reported a beat on both revenue and earnings.
Revenues for Q4 were at $275.1 million, up 40% year over year and a new record for the company. Earnings moved up by almost 4 times in the same period to come in at $1.61 per share, compared to just $0.43 per share in the prior year and much ahead of the consensus estimate of $1.44 per share.
Order backlog, a key indicator of both the demand for the company's products and services as well as revenue visibility, was at $726.6 million as of April 30, 2025. This marked a significant yearly uptick of 81.6% from the prior-year period.
Although the company reported a net cash outflow from operating activities of $1.3 million in fiscal 2025, AeroVironment's liquidity position remained solid with a cash balance of $40.9 million and with no short-term debt on its books. In fact, the long-term debt of $30 million was also less than the cash balance, an impressive feat for a company in such a capital-intensive industry.
For fiscal 2026, the company said it expects revenue to range between $1.9 billion and $2 billion and earnings to be between $2.80 and $3.00 per share.
Drones front and center in modern warfare. As defense spending rises across the world, drones are going to play an even larger role.
And this is where Cramer's 'Palantir of Hardware' stance for AeroVironment kicks in as the company's expertise in UAVs makes it a compelling contender to serve this rapidly growing and critical market.
Evidence of this is AeroVironment's Switchblade 600 loitering munition being one of just three platforms selected for the initial tranche of the U.S. Department of Defense's Replicator program. Replicator Tranche 1 represents the program's inaugural phase, targeting the rapid deployment (within 18 to 24 months) of mass-produced, expendable autonomous platforms such as drones, loitering munitions, and unmanned maritime assets. The objective is clear: strengthen America's defensive capabilities through speed and scale to deter adversarial threats more effectively.
Then, another critical piece of AeroVironment's value proposition is its Autonomy Retrofit Kit, powered by the AVACORE framework. This system equips legacy Puma airframes and future models with plug-and-play computer vision capabilities, enabling them to search, identify, and strike targets independently of radio commands. The advanced 600L variant exemplifies this leap in autonomy, as it features automatic armored-vehicle recognition, selectable approach vectors, and onboard target classification systems that drastically shorten the engagement timeline.
Complementing these technical advancements is the firm's innovation arm, MacCready Works, which is integrating swarm-enabling code with Nvidia (NVDA) Jetson-class GPUs. This collaboration lays the groundwork for munitions capable of operating cooperatively in real time, allowing for dynamic in-mission retasking and coordinated strikes.
Notably, AeroVironment is also no longer positioning itself as merely a drone manufacturer. With its acquisition of BlueHalo and the expansion of its Utah facility, the company is evolving into a more broadly diversified defense-technology player. BlueHalo's emphasis on software-defined systems is expected to accelerate margin expansion and free cash flow, supporting AeroVironment's ambitions for long-term double-digit growth.
Crucially, AeroVironment's current portfolio is primed for the growing wave of AI-driven robotics. From its lightweight Raven reconnaissance drones to the Switchblade line of loitering weapons, its systems are naturally aligned for next-gen autonomous enhancements.
Looking ahead, a new slate of products signals where AeroVironment is headed. The P550 eVTOL, for example, boasts a five-hour electric flight capability, supports payloads up to 15 pounds, and can deploy precision-guided munitions, potentially aligning with the Army's Long-Range Reconnaissance platform needs. Meanwhile, the JUMP 20-X modifies the firm's Group 3 VTOL for shipboard applications, featuring autonomous launch and recovery even in sea state-5 conditions, a bar few competitors can clear. Then there's Red Dragon, a strike drone designed for contested environments where GPS access is compromised. Its onboard vision-based targeting system makes it highly relevant for the kind of autonomous lethality envisioned by the Pentagon's Replicator strategy.
Taken together, these developments reinforce AeroVironment's transformation from a niche player into a leading-edge defense innovator deeply aligned with the future of autonomous warfare.
Thus, analysts have deemed AVAV stock to be a 'Strong Buy.' Both the mean target price as well as the high target price have already been surpassed, a testament to the stock's recent sharp rally. Out of 7 analysts covering the stock, six have a 'Strong Buy' rating and one has a 'Moderate Buy' rating.
On the date of publication, Pathikrit Bose did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com
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