How to Invest in Military Drone Technologies?
The Russia-Ukraine War showed us that wars, armies and war doctrines are changing radically in the world. Along with this, the war equipment that armies will use. While conventional wars require heavy tanks, ships and aircraft that cost hundreds of millions of dollars, what is needed more in the new era is smart drones, hundreds of thousands of them.
When we say drones, we do not only mean those flying in the air, but also those traveling on land, those traveling under water, all types of drones. Because thanks to these drones, you can inflict great damage on the enemy at very low cost. Today, it is possible to destroy a tank worth several million dollars with a drone that costs 5-10 thousand dollars.
Again, it is possible to destroy a warplane worth several hundred million dollars with a drone that may cost a few hundred thousand dollars. Examples of this were not only experienced in the Russia-Ukraine War. We see similar examples in the struggle between India and Pakistan. Again, the fact that the giant US fleet cannot cope with the drones of the Houthis in Yemen is a good example. Of course, such transformations always create investment opportunities.
A new article published in the Wall Street Journal says that the American military will spend $36 billion on drones in the coming years. The article explains that the Pentagon is now very interested in switching from heavy defense vehicles to these types of drones because they can fight much more efficiently and economically. In fact, it is not just the US that is doing this; all armies in the world are undergoing this type of modernization. So what does this $36 billion investment mean? Where are the investment opportunities emerging? First, the US is moving away from traditional platforms. This is discrediting some old favorite defense companies.
The US wants to move to autonomous systems. They want vehicles that are supported by artificial intelligence, can be controlled remotely and can operate autonomously. This opens up new investment opportunities for us. Because there are quite a few of these types of companies that are publicly traded.
Which companies are in the drone sector? Who can be invested in? Let's examine them together. Never forget that what I am going to tell you is not investment advice. I am trying to give you a general idea, to raise awareness. You should definitely do your own research.
The name of our first company is a bit difficult. AeroVironment. It is traded on the American stock exchange with the abbreviation AVAV. This company has a strong position in the tactical drone market. It also has a serious market value of $ 4.72 billion. They also made a turnover of $ 716 million in 2024 and operate with a gross profit of 139.
They emphasize lightness and portability with Switchblade ammunition and Puma reconnaissance drones. They claim to have very ideal solutions in asymmetric wars. These products have been tested in real war conditions in the Ukrainian War and were generally appreciated. They are pioneers in loitering ammunition. What are these? These are these kamikaze drones. You see them often, unfortunately. The drone goes and attacks a soldier, a tank. First, it hovers in the air, detects the tank.
Then he goes and organizes the attack. Some of them are controlled by a remote pilot. Some of them have become smart. They can hit and destroy their own targets. It's a little scary. The company is small. That's why they can do rapid research and development. They are very strong in innovative solutions. Their production center is the USA. I think this is important in these days when customs tariffs are critical and they have products that have been proven in war. They have a pretty cool website.
They say that war is no longer what it used to be and they explain with various examples how drones come into play in wars and how war has now turned into electronic warfare. There is a warning about the company on Seeking Alpha. The reason for the warning on Seeking Alpha is that the stock has not been performing very well recently. The analysts writing on Seeking Alpha have given a hold. Wall Street likes the stock. It gives a strong buy. When we look at the financial situation of the company from a quantitative perspective, we see a sell recommendation.
Valuation is F, growth is A, profitability is D, momentum is C, revisions are minus D. In other words, Seeking Alpha does not offer us a super, promising analysis about the company. But despite this, can AVAV be considered for investment? If you are thinking long-term, it really can be. Because the geopolitical environment is likely to get complicated in the coming days. You are already following what is happening in the world. I think that both the American army and other western armies may need AVAV's products. Therefore, although it is a speculative investment, I believe it can be considered, why not. Let me remind you again that what I am telling is not investment advice.
Another interesting company is Red Cat Holdings, abbreviated as RCAT. This is a smaller company. It has a market value of around $515 million. It could only achieve a turnover of $7.3 million in 2024. However, it has a huge loss of $65.4 million.
In other words, it is just evolving from a start-up to a real company. The company has a Teal-2 drone. It is equipped with night vision systems and is specially designed for infantry units with its compact structure. Red Cat recently won a large Pentagon tender. They won the US army's short-range reconnaissance, SRR tender. This is also a significant achievement for them, but they have not yet started delivering the products. Lightweight and low-cost products are advantageous. Production is made in the USA. This is also important and has a modular design. But we do not yet know whether the company will be able to successfully fulfill this contract. In other words, will it be able to establish production lines? The company's financial situation is not very strong either.
Will the company be able to deliver this product by obtaining the necessary support without going bankrupt? If it can achieve these, I think the company has the potential to increase its value by around 10 times in the next 3 years. But this is even more speculative than the previous example. Because the previous one had a serious turnover. There was a serious cash flow. This is not the case. The company will either survive or disappear thanks to this tender.
They have a very nice website. You can examine Red Cat yourself. This website shows the smart drone accompanying the infantry. It literally becomes the infantry's hands and feet. There is no warning about Red Cat on Seeking Alpha. Seeking Alpha analysts have given a buy. Wall Street gives a Strong Buy. When we look at it quantitatively, there is a Hold. So, at least from the perspective of Seeking Alpha analysts, it is in a slightly more positive place. But never forget that the company is a very small company.
The third company we will examine is Kratos. It is one of the most well-known companies in this field. Its abbreviation is KTOS. It has a market value of $5.2 billion. They have also achieved a turnover of $1.14 billion. It has a 25% profit margin and a 1.4% net profit salary. In other words, this company is profitable. They have $1.95 billion in assets and $850 million in equity. The prominent product of this company is the Valkyrie XQ-58A. These interesting products accompany F-35 fighter jets. In other words, they move together with the aircraft. In this way, they both protect the aircraft and increase the attack power of the aircraft. Such an interesting UAV.
It brings cost efficiency. You can produce and operate it at a much lower cost than classic fighter jets. They do not need a pilot. It has autonomous mission software. In other words, it can fight and make decisions on its own. They have developed strong algorithms in this regard. They have an important place in the Air Force Strategy. The US wants Kratos type drones to assist and support all fighter jets in the coming period, and it is one of the first players to enter this field and has a great advantage in this respect. It is an incredibly powerful and interesting technology that can fly with fighter jets. When we look at the Seeking Alpha analysis about Kratos, there is no warning. The company's situation does not seem to be that bad. Wall Street is buying it. Seeking Alpha analysis says hold. There is also a quantitative hold. The reason for this is that the stock is a bit expensive. It has a forward price-earnings ratio of 66.53. In other words, it has taken a significant part of the valuation. In fact, the increase in the last year alone is 72.48%. It is a bit expensive, but it is a more stable company compared to others. By the way, I don't know why. It fell sharply on Friday, by 5.10%.
The next company is a bit different. Palantir is actually a software company. In other words, it is an artificial intelligence software company. It has a revenue of $3.89 billion. It has an impressive gross profit margin of 80%. The company's value has reached $280 billion. In other words, it is a pretty big company now. Palantir is different from others, it does not directly produce drones. However, it produces software that these drones will work on. On the other hand, they have a project called Titan with the US army. Here, they produce some vehicles that we can call land drones. It has very deep integration with US intelligence. It cooperates closely with the Department of Defense and intelligence agencies. It has the highest level of confidentiality rights in this regard. In other words, it can access all kinds of data and information within the Pentagon. It processes real-time data. It has software that instantly interprets and activates big data. Thus, it provides critical decision support to field commanders.
There is scalable artificial intelligence here. It can be scaled according to different needs. It has an algorithm structure that constantly learns and improves itself. Palantir is not only in the defense industry. Private sector companies also use Palantir to make more accurate decisions. It is a company that I really like, is growing very fast and is talked about a lot in America. It also has close relations with Trump. Palantir's founder Peter Thiel is also a partner in Elon Musk's SpaceX. They were already partners in PayPal. They have such deep relations. He is also on very good terms with Trump. In that context, Palantir is an interesting company. Palantir's problem is that it is extremely expensive. When we look at the price divided by earnings, it is 203.85 and when we look at it, there are always hold recommendations. The stock is expensive, but the growth is tremendous, the profitability is tremendous, the momentum is tremendous and the place it will be in in the future is also tremendous. If you are going to invest in Palantir, it would be useful to think carefully and step by step. It may be possible to benefit from pullbacks, but the company is not pulling back much. It fell to $80 during the recent tariff tensions. But it quickly came back to $120. It is a somewhat volatile stock.
When you invest in Palantir, you are also indirectly investing in Anduril. Anduril is not a publicly traded company, unfortunately. But I think this is the most interesting company in the drone world and Peter Thiel, the founder of Palantir, is one of the major partners of Anduril. Anduril has become very powerful in the American state right now. They have drones, drone blocking technologies. When we say drones, they are not just air systems. They also have underwater drones. They play very, very important roles in drone warfare. When you become a partner in Palantir, it is as if you have indirectly acquired a share in Anduril. I plan to become an investor as soon as it goes public.
To summarize, it is possible to invest in drone technologies in different ways. It is possible to invest in tactical ammunition systems, in other words, directly combat drones.
AeroVironment is an interesting example in this regard with Switchblade. It is possible to invest in high-speed combat UAVs. They accompany fighter jets. Kratos' Valkyrie is an example of this, or it is possible to invest in software in this field. Command control software, like Palantir, are also interesting games in this area.
There are other companies. For example, there is RTX, they also produce drones. More traditional defense industry players; Lockheed Martin and Northrop Grumman also produce these types of drones and similar technologies. They can also be considered for investment and there are ETFs. Choosing the right technology for these types of new technologies is a bit difficult. Especially in companies that do business based on the state, it can be difficult to predict who has better relations with the state and who will win the next tender. ETFs can also be considered in this context.
It is always a new world. I normally do not like defense industry investments. But I see that the world is getting a bit messy geopolitically and the United States will make big investments in these types of areas, especially due to its competition with China. I believe in this very much. Because the tech bros who are dominant in the USA right now, that is, big technology company executives, are very dominant in the state, especially Elon Musk. They convinced Trump of this new generation defense technology. They believe that they can create a stronger defense system by establishing their own supply chains in their own countries with lower costs and fewer people needed. Trump also believes in them. So it seems like money will pour into these areas in the coming period.