Drones Stock AeroVironment Is Now a Space Stock, Too

Established in 1971, AeroVironment (NASDAQ: AVAV) has evolved over the past six decades, first from a maker of experimental solar-powered aircraft, then to a specialist in small, innovative surveillance drones, and then to a major source of weaponized drones -- specifically, Switchblade loitering munitions -- for the military. And the bigger AeroVironment gets, the more new areas of the aerospace industry it's affecting.

Case in point: In May 2025, AeroVironment announced it had closed its purchase of defense company Blue Halo for $4.1 billion. For AeroVironment -- a stock worth less than $7.5 billion today -- this was a transformative deal, turning the company from a drone specialist into a self-described "global defense technology leader with integrated capabilities across air, land, sea, space, and cyber."

Image source: Getty Images.

Blue Halo makes green for AeroVironment

You can see the effect of this acquisition right on the company's income statement, where AeroVironment's revenues leapt from $820 million in the year before buying Blue Halo to $2 billion in the year after. Probably $619 million of the improvement can be traced directly to Blue Halo, now part of the company's "Space, Cyber, and Directed Energy" (SCDE) division.

Not all the news was good. Profitable in 2025, AV began losing money soon after. It was unprofitable in every quarter of 2026, and in the first quarter of 2027 as well -- with SCDE in particular described as unprofitable. Analysts are hopeful, however, that things will work out well for AV. Forecasts compiled by S&P Global Market Intelligence show AV turning GAAP-profitable by the end of this year, with $0.45 per share in earnings -- then tripling that profit in 2028, doubling it in 2029, and nearly doubling it again by 2031.

If these forecasts prove accurate, AeroVironment stock, which trades at infinity-times-earnings today, could be valued as cheaply as 25x its estimated earnings in 2031.

Blue Halo glows brightly

How much of this improvement will come from Blue Halo, specifically? That remains to be seen -- just as we wait to see how quickly Blue Halo's $4.1 billion purchase price will pay AeroVironment back in the form of new revenue.

Searching through the Defense Department archives, it appears that Blue Halo has only ever been awarded four Pentagon contracts -- most of them quite small:

• $10.6 million awarded in June 2021 for training services on the Stinger surface-to-air missile.
• $20 million in February 2026 for "next-generation models ... data integration and databasing and artificial intelligence and machine learning."
• Part of a $97 million January 2025 award "for the processing, behavior characterization, and performance prediction of advanced aerospace materials," divided among Blue Halo and three other companies and organizations.
• And most recently, $99.8 million awarded on Sept. 11, 2026, for "research and development to advance scientific knowledge and state-of-the-art technology supporting space systems."

The most recent space contract jumps out as by far the largest award granted exclusively to Blue Halo, the first big win for the SCDE division since it became part of AeroVironment, and proof positive that AeroVironment is evolving into a space stock -- generating revenue in this new growth market. At just under $100 million, this space contract alone represents nearly as much as SCDE collected in revenue in the first fiscal quarter of 2027 ($134.5 million).

The upshot for investors

Still, AeroVironment investors shouldn't get too excited here. According to the Pentagon announcement, the $99.8 million space systems award isn't due for completion until late 2031 -- implying the revenue from this contract will be spread over five years. That means the award will really only increase annual revenue by about $20 million.

When you further consider that SCDE's revenue isn't currently profitable for AV (SCDE's adjusted EBITDA losses were $9 million in Q1), my hunch is it's going to be a long time before this $4.1 billion acquisition even begins to pay for itself.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends AeroVironment. The Motley Fool has a disclosure policy.