AeroVironment's Unmanned Dominance: A "Strong Buy" in a Soaring Defense Market

The defense technology sector is on fire, fueled by global tensions, modernization efforts, and the rise of unmanned systems. AeroVironment (NASDAQ: AVAV) has positioned itself at the epicenter of this boom, leveraging its portfolio of loitering munitions and uncrewed systems to secure record revenue, a nearly doubled backlog, and ambitious fiscal 2026 guidance. While challenges like supply chain constraints and integration risks loom, the company's strategic moves—bolstered by its BlueHalo acquisition—paint a compelling case for investors to bet on this drone innovator.

Financial Resilience: From Record Revenue to a Backlog Goldmine

AeroVironment's fiscal 2025 performance was nothing short of staggering. Revenue hit $820.6 million, a 14% year-over-year increase, while bookings soared to $1.2 billion—a figure that directly feeds into its funded backlog, which skyrocketed from $400.2 million in April 2024 to $726.6 million by April 2025, nearly doubling in a single fiscal year.

The company's fiscal 2026 guidance—projecting revenue of $1.9–$2.0 billion—reflects confidence in sustaining this momentum. This 141% to 143% jump from 2025's results is underpinned by the inclusion of BlueHalo's operations, which closed in May 2025. BlueHalo's advanced directed-energy systems and cyber capabilities are already expanding AeroVironment's addressable market, from traditional loitering munitions to cutting-edge defense tech.

Product Diversification: Beyond the Switchblade

AeroVironment's core strength lies in its Loitering Munitions Systems (LMS), which saw an 87% revenue surge in Q4 2025 compared to the prior year. The Switchblade 300 and 600 drones, deployed in Ukraine and by NATO allies, are frontline tools in modern warfare. But the company's recent moves signal a broader vision:

• BlueHalo's Integration: Adds high-tech assets like the Garden Plot directed-energy weapon system, designed to counter drones and missiles. This expands AeroVironment's offerings into defense domains beyond mere reconnaissance.
• Multi-Generational Uncrewed Systems: The Puma and Wasp drones, used for intelligence gathering, are being upgraded to meet evolving battlefield needs.

The MacCready Works segment, which develops advanced energy systems, grew 24% in Q4 2025, demonstrating the company's ability to diversify beyond its drone core.

Alignment with Defense Priorities: A Tailwind for Growth

Governments worldwide are accelerating spending on unmanned systems. The U.S. Army's $990 million IDIQ contract for Lethal Unmanned Systems, awarded to AeroVironment in August 2024, underscores this trend. With global defense budgets expected to rise—particularly in Eastern Europe, the Indo-Pacific, and the Middle East—AeroVironment's products are squarely in the crosshairs of military modernization plans.

CEO Wahid Nawabi's focus on “multi-domain dominance”—combining air, ground, and cyber capabilities—aligns perfectly with Pentagon priorities. The company's ability to deliver scalable solutions, from handheld drones to directed-energy systems, gives it a unique edge over rivals like Kratos Defense or Textron's Aerovironmental competitors.

Risks on the Horizon: Integration, Supply Chains, and Valuation

No investment is without risks. AeroVironment's outlook hinges on successfully integrating BlueHalo, which contributed to a $18.4 million goodwill impairment in its UGV business. The company must also navigate supply chain bottlenecks, which could delay production of high-demand systems.

Additionally, the lack of GAAP reconciliation for fiscal 2026 earnings—due to BlueHalo's intangible assets—introduces uncertainty. Investors must trust management's non-GAAP metrics, which exclude one-time costs, to reflect true operational performance.

A "Strong Buy" at Current Levels

Despite these risks, AeroVironment's fundamentals are too strong to ignore. With a backlog that guarantees visibility into 2027 and a product pipeline aligned with defense spending trends, the stock offers asymmetric upside.

The recent dip—shares fell 3.3% post-earnings amid concerns over GAAP adjustments—is a buying opportunity. At a trailing P/E of ~25 (versus peers at ~20), the valuation reflects growth expectations, but the long-term trajectory justifies a premium.

Investment Thesis:
- Buy: AeroVironment's backlog and strategic moves make it a prime beneficiary of rising defense budgets.
- Hold: For investors wary of integration risks or valuation multiples.
- Avoid: Only if geopolitical tensions ease sharply, reducing demand for unmanned systems—a low-probability scenario given global instability.

Final Verdict

In a world where drones are becoming the new artillery, AeroVironment is the undisputed leader. Its blend of innovation, diversified product lineup, and contractual certainty makes it a standout play in the defense tech space. While risks exist, the tailwinds of global defense spending and the BlueHalo synergies suggest this stock is primed for multiyear outperformance. For investors willing to look past near-term noise, AeroVironment is a “Strong Buy” with a trajectory few can match.