Drones are the fastest-growing, multibillion-dollar investment opportunity in the hot space of “physical” artificial intellgence, according to Oppenheimer. The global defense market has seen booming growth over the past year driven by rising geopolitical conflicts and military investment, with the House of Representatives in December authorizing the Defense Department to spend $900.6 billion fiscal 2026. The key driver of this growth in defense is drones, a technology that is rapidly advancing warfare and could have ripple effects on other commercial technologies down the line. Oppenheimer forecasts the total addressable market for drones —specifically drone hardware, services, AI, and associated software — to grow from $45 billion to $400 billion globally, with half of this spend for lower skies, sea and land and the remaining for upper skies, including satellites. Analysts at the firm believe that this market in the future will be rebuilt around unmanned drones, robots and autonomous systems that function remotely or autonomously with AI or another kind of pre-programmed technology. The adoption of drones will prompt a “paradigm shift” in how institutions function given that the technology will be the first large-scale deployment of physical AI and could be applied to self-driving transportation and other commercial uses, they wrote in a note Thursday. “AI is driving an infrastructure and soon a manufacturing boom as well as dozens of Physical AI use cases (Waymo), with drones the fastest-growing,” the note said. “Whoever wins the drone swarm arms race will win the war. This requires new mobile edge compute/network/blockchain technology, a natural evolution from the internet and cloud which will be commercialized.” Oppenheimer said that the global military spend on defense is around $3 trillion — a 50% increase over the last five years. They added that will likely double in the next decade. How to play it A newer “lower-skies” category within the global defense market — which includes tech such as counter-drone defenses — is growing twice as fast as the entire market. Ondas is the way to play this trend, according to analyst Timothy Horan. Horan named Ondas his top drone platform stock, saying the company is “positioned to dominate the lower-skies market integrated with ground robots, where there will only be a few platform companies with high ROI.” ONDS 1Y mountain Ondas stock performance over the past year. Ondas, up 7.1% this year, has an autonomous drone business in AI-enabled aerial security and infrastructure monitoring, which has become of increasing interest among governments prioritizing low-altitude operations. The company on Dec. 3 said it was selected as the prime contractor on behalf of a major governmental entity for a program that will create a next-generation autonomous drone system “designed for continuous border protection in both fixed and mobile configurations.” Ondas remains well-favored among analysts covering the name. Of the eight covering the stock, three rate it a strong buy and five have a buy rating, per LSEG. The consensus price target suggests 75.9% upside. Horan’s other picks include satellite companies BlackSky Technology and Iridium Communications , which he said are complementary to the drone observability market, referring to the ability to detect, monitor and manage drones in real time. Iridium shares are outperforming the broader market with its 29% gain this year. Iridium provides secure satellite connectivity between drones with operators, which is a critical function as unmanned systems increasingly operate beyond visual line of sight. BlackSky, which provides real-time satellite -imagery to provide drone observability, has seen shares gain 6.6% year to date.
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