AeroVironment Hit a Bottom in Q2—Can It Take Flight in Q3?

Key Points

• AeroVironment holds a $1.2 billion funded backlog and has expanded into autonomous systems, space, cyber, and directed energy through acquisitions like BlueHalo.
• New catalysts, including directed-energy systems like LOCUST and a swarm-drone partnership with Applied Intuition, position AeroVironment for growth in 2026.
• Analysts see roughly 50% upside with a price floor near $166, while institutions have aggressively bought shares despite risks from margin pressure and SCAR-related lawsuits.

The war in Ukraine taught the U.S. Army many lessons, including the value of drone technology, and AeroVironment NASDAQ: AVAV is well-positioned to benefit.

While enemies struggle to get materiel in place, AVAV's drones are in the sky, hunting them down in real time and providing actionable intelligence and the resulting action, as evidenced by the term Loitering Munitions System (LMS).

The critical benefit of this technology is that the men and women operating it stay far from danger while reaching military objectives.

The key takeaway for investors is that AeroVironment is emerging from a transitional year and is poised for sustained strength in the coming years.

The company has a solid portfolio of defense franchises, a massive backlog, and government protections that benefit the entire industry.

With $1.2 billion in funded backlog, AeroVironment only needs to execute on its orders to outperform its guidance, and the guidance is robust.

Backed by recent acquisitions, including BlueHalo, the company has transitioned into a comprehensive defense contractor focused on autonomous systems, space, cyber, and directed energy.

AeroVironment Has Numerous Catalysts in 2026

Directed energy is a catalyst for drone stocks this year, as it is central to counter-drone technology. The concept is simple: drone systems detect and locate incoming attacks, then neutralize them with directed-energy pulses and lasers. AeroVironment’s contributions include its LOCUST Laser Weapon System and Halo-Shield. LOCUST is a ground-based device that detects and neutralizes incoming drones; Halo-Shield is a highly effective, grid-based counter-drone system that can be deployed across domains, including land and sea, and incorporates features such as unmanned aircraft and LOCUST counter-drone technology.

Another catalyst for AVAV is a new partnership with Applied Intuition. Applied Intuition's technology enables AeroVironment’s Mayhem 10 aircraft to operate as a swarm, controlled by a single operator. The setup supports numerous configurations, including hunter-killer scenarios in which a surveillance-equipped drone is paired with an LMS. In this setup, operators can find and eliminate targets in real time, doing jobs once handled by teams of pilots in multimillion-dollar helicopters. AVAV drones cost just thousands at the low end and well below $1 million at the high end, creating an obvious cost differential that cannot be ignored.

AeroVironment Analysts and Institutions Signal Upside Potential

Analyst activity since AeroVironment’s earnings release and guidance update for its fiscal Q4 has been lackluster, as they had expected the report to be strong.

However, as tepid as the several price target reductions appear, they were offset by more reaffirmed ratings, and the general sentiment underscores the opportunity. More importantly, the activity strengthened AVAV’s price floor, with the low end unchanged at $166, aligning with the critical support target. With consensus forecasting a 50% upside, the only thing lacking for this market to complete its reversal is a solid catalyst, and one of those, if not more, is rolling down the pipe.

Analysts at Piper Sandler found signals in commentary from an industry event this summer. In their view, those signals point to active negotiations for AeroVironment’s LOCUST systems that may result in an order. They estimate the deal at about $500 million, a significant win for the company.

Institutional activity is another signal highlighting AVAV’s opportunity. Institutions show strong confidence in AVAV's outlook, owning more than 85% of the stock and accumulating aggressively. MarketBeat data shows buying outpacing selling by more than $2 to $1 over the trailing 12 months, with activity ramping in 2026. Early Q3 activity is particularly robust, with institutions setting an all-time high for buying—half the quarter still to go and virtually no selling.

AeroVironment Stock Nears a Key Technical Reversal Level

With this in place, investors can assume AVAV shares have a solid floor near $140, will likely be bought on dips, produce rebounds when support targets are reached, and complete their technical reversal in time. The critical resistance level is the top of the recent trading range, near $200 on the weekly chart, and a likely trigger for capital inflow if it breaks.

AVAV’s biggest risks include margin pressures and lawsuits linked to the lost SCAR contract. Margins were weaker than expected due to increased R&D, an expense that has been paying off in many ways. The lost SCAR contract isn’t an operational challenge anymore, but it is a problem for early investors.

The company faces class-action lawsuits alleging false statements that will impact cash flow with legal fees and bad PR for the foreseeable future. The impairment to the balance sheet is also substantial, though non-cash. Given time, the company will recover—and that recovery is already underway. The balance sheet provides little cause for worry, although the impact of acquisitions is clearly visible.

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