Avner Meyrav
By Avner Meyrav
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Drones are taking flight: Here’s how to invest

It’s a bird! It’s a plane! No, it’s another drone flying overhead. In recent years, it seems that the skies have been denser with these flying machines, and we expect to see even more of them in the near future. While we are still not quite in a Ready Player One sci-fi world, where pizza delivery drones hover about, we might not be very far from that scenario – and the investment opportunities will also begin to take flight.

At the end of 2017, the global commercial drone market was estimated at $1.7 billion and is expected to grow to a massive $179 billion by 2025¹. Smart commercial drones are expected to be the key growth factor, but the market’s expansion is currently being hindered by regulations.

A market about to take flight

While unmanned airplanes and other flying vehicles have been in use by the military of the world for decades, it is only in recent years that they have made their way into other more commercial uses.

Military

Still the most common use for drones, UAVs have become an increasingly large part of military and airforce activities around the world. Ranging from bird-sized reconnaissance drones to massive unmanned planes as large as passenger jets, this $70 billion² portion of the drone market will still be a major driver of innovation and technological development in the industry.

Consumer

Around the world, the most common market is recreational use, as private hobbyists are a major part of this $17 billion portion of the industry. However, drones are also becoming increasingly popular as camera-carriers for sporting events, concerts and other mass gatherings.

Commercial

While not the largest part of the market, currently estimated to reach $13 billion by next year, the commercial/civil market is expected to show the fastest growth. In the hands of businesses and civil governments, drones are expected to be used for construction, smart cities, agriculture, the oil industry, police activity and more.

A variety of industries make use of aerial vehicles to monitor their activities. Oil pipelines that span great distances benefit from aerial monitoring, currently performed by manned helicopters. However, drones could be much more cost-effective, as they are significantly cheaper to manufacture and do not need to be manned.

Drones can also impact agriculture. Since drone technology is already much cheaper than traditional solutions, farmers from developing countries could use it to monitor crops from above in a much more affordable way. Moreover, with recent advances in image recognition, artificial intelligence and machine learning, it is possible that these tasks will be carried out by autonomous drones in the future.

Peripheral

Naturally, the expansion of the drone market will impact more than just drone makers or companies utilising drones. Specialty processors, sensors, batteries, cameras and other components are likely to become a sizable chunk of the market. Therefore, the financial potential of the market is also far greater than just the growth of companies actively manufacturing or using drones.

The core technology behind drone operation has only made its way to the public market in recent years, and is estimated to have much room for growth. However, to expand to these markets effectively, drones will have to hover above one more obstacle: regulations.

Clipping their wings

The regulation hurdle is perhaps the most significant factor holding the market back at the moment. In the US, a key market for all sorts of technological expansion, the Federal Aviation Administration (FAA) still has many restrictions in place that make the use of drones impossible in various industries.

At present, the FAA limits the altitude of commercial drone flights to 400 feet (around 120 meters), does not allow them to be flown over people and limits the flight distance to the pilot’s line of sight. The combination of these three limitations present quite a challenge to commercial uses, as many of the potential markets to which drones can expand, will require at least one of the regulations to be changed. Needless to say, many commercial entities have been lobbying to change the regulations.

Potential is on the rise

The most attention-grabbing drone-related venture in recent years has been Amazon Prime Air, which was created with the intention of offering 30-minute deliveries. Announced back in 2016, the service has yet to become available, most likely due to the aforementioned FAA regulations. However, drone technology can be a potential disrupter of many other sectors.

Aside from the industries mentioned earlier, firefighters, humanitarian organisations, and search and rescue efforts could benefit greatly from having flying machines that could conduct reconnaissance of dangerous areas and even evacuate casualties on their own. And it won’t end there. Private security, healthcare and many other industries will benefit from the growth of the drone market.

Investing in the drone industry

To enable its clients to gain exposure to the long-term potential of the drone industry, eToro has created the DroneTech CopyPortfolio – and you can add it to your Watchlist. This thematic investment strategy comprises various companies related to the drone industry: Ranging from tech companies such as Amazon and Google to aviation giants such as Boeing and Airbus to chipmakers such as Intel and NVIDIA, and many others. With such great growth potential and many exciting possibilities of disruption, the drone market could shape up to be one of the hottest markets for investment in coming years.

Your capital is at risk.

Sources:

1) https://www.reuters.com/brandfeatures/venture-capital/article?id=62679

2) https://www.goldmansachs.com/insights/technology-driving-innovation/drones

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