The Iranian conflict has assuredly revealed the vital role of military drones in modern warfare. And it has also exposed the underlying economics behind drone defense, namely the deployment of multimillion dollar missile interceptors to shoot down one-way attack drones which typically only cost between $20,000-$50,000. This is a fairly stark asymmetric cost of war.
The pervasive use of drones has no doubt caught the attention of the US Whitehouse, which is seeking a budget proposal to triple drone spending to more than $75 B. This line item is within a broader request to increase overall defense spending from $1 trillion to $1.5 trillion.
While legislative hurdles remain and the budget remains a work in process, it is probably fair to say there is positive momentum for developing more robust and sophisticated drone and anti-drone technology.
Here we highlight 2 microcap stocks involved in this space for your watchlist.
Applied Energetics, Inc. (AERG) specializes in the development of advanced laser and photonics systems, particularly fiber-based ultrashort pulse (USP) laser technologies for defense, national security, biomedical and industrial applications. Applied Energetics (AERG) focuses on delivering high-intensity, ultrashort pulse optical solutions with reduced size, weight and power requirements for deployment across various platforms.
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The ultrashort pulse lasers, or “directed energy”, are intended to dismantle the battery and navigation systems of the attacking drone, although weather conditions can be a recurring challenge for effectiveness.
Interceptor missiles are preferable for long-range , high-altitude targets and are less impeded by weather issues. Anti-drone laser technologies excel more in shorter-range scenarios.
Applied Energetics’ key tech differentiator is its ability to deliver peak power within a smaller footprint.
The other microcap, AgEagle Aerial Systems Inc. (UAVS), is a provider of uncrewed aerial systems (UAS), multispectral sensors and related software solutions for military/defense, public safety, agriculture, surveying, mapping and utilities applications.
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The company’s drone portfolio, consisting of the eBee product line, has experienced some commercial success. But importantly, AgEagle Aerial Systems Inc. (UAVS) is now diversifying into counter-drone applications via a 51% ownership JV with ThirdEye Systems in April with a $10 m investment. The JV will enable counter-drone production at the company’s new production and HQ facility in Allen, Texas.
AgEagle Aerial Systems, Inc. has executed several capital raises via preferred stock which has bolstered its cash position to $26.9 m.
Both companies have exhibited choppy financial performance and are intricately linked to the inherent lumpiness and delayed timing of the government budget procurement process. This is primarily why we suggest you put the names on your watchlist and look for key inflection points of operational momentum and execution.
Regardless, both companies have technology directly applicable to a dynamic space which has been highlighted by the recent Mideast conflict and could offer significant growth potential. And the need for lower-cost anti-drone technologies has clearly become apparent.
Beyond Nvidia: AI’s Second Wave Is Here
The AI revolution has already minted millionaires. But the stocks everyone knows about aren’t likely to keep delivering the biggest profits. AI’s second wave is moving from infrastructure to implementation and these companies are at the forefront of this transition, positioned to become what Amazon and Google were to the internet era.
Applied Energetics Inc. (AERG): Free Stock Analysis Report
AGEAGLE AERIAL SYSTEMS, INC. (UAVS): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).
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