The global drone industry has reached a pivotal growth phase driven by increasing uptake across commercial, government and military sectors.

According to a report from Mordor Intelligence, the global drone tech market is expected to witness a CAGR of 9.3% from 2026 to 2031. The convergence of drones with artificial intelligence (AI), cloud computing and edge processing is further driving adoption across verticals.

Ondas Inc. (ONDS Quick QuoteONDS - Free Report) and AeroVironment (AVAV Quick QuoteAVAV - Free Report) both operate in the defense and unmanned systems domain, but from very different positions in terms of scale and maturity.

These companies bring unique strengths to the table, which make this an intriguing comparison for investors.

So, the question arises: which stock makes a better investment pick at present? Let us dive into the fundamentals, valuations, growth outlook and risks for each company.

The Case for ONDS

Ondas’ second-quarter 2026 revenues surged more than 13 times year over year to $83.8 million and increased 67% sequentially. The top-line growth reflected acquisitions and solid execution across Ondas' core business. Pro forma organic revenues increased 85% year over year.

Ondas captured $175 million in new orders during the second quarter and $105 million through the quarter to date. Its two-year strategic program pipeline exceeded $11 billion, spanning aerial security, intelligence, surveillance and reconnaissance, precision strike and autonomous ground systems.

Visibility is improving alongside revenues. Reported backlog reached approximately $613 million as of June 30, with pro forma backlog of $757 million including DZYNE and Cyberhawk acquisitions. Management is not only focusing on selling drones but on connecting a portfolio of technologies into integrated systems spanning detection, intelligence, command and control, electronic warfare, and kinetic defeat. Ondas has continued to expand its precision-strike capabilities through acquisitions.

On the last earnings call, the company raised its full-year revenue outlook to $525-$550 million from the previous target of at least $525 million, representing more than 10 times the reported figure for 2025. At the midpoint, the outlook implies more than 30% year-over-year organic growth on a pro forma basis.

For the third quarter, revenues are expected at $140-$155 million, implying approximately 76% sequential increase at the midpoint and more than 30% organic growth year over year on a pro forma basis. In September, the company acquired GATE Technologies and Bron Technologies, adding electronic safe-and-arm devices and advanced electronic fuzing technologies. Ondas expects GATE to generate $65 million of full-year 2026 revenues, rising to $180 million in 2028, with more than $130 million in aggregate adjusted EBITDA through 2028.

Ondas Holdings Inc. Revenue (Quarterly)

 

Ondas Holdings Inc. revenue-quarterly | Ondas Holdings Inc. Quote

For all the excitement surrounding revenue growth, second-half ramp and profitability remain the key tests for ONDS. The magnitude of the expected ramp introduces execution risk. For ONDS, if a single large customer delays, reduces or cancels, revenues could be affected materially.

Extensive M&A also amplifies execution risks. Multiple acquisitions in such a short period can create integration overload and execution risks, since achieving targets depends on timely integration and conversion of backlog into revenues. The GATE/Bron deal entails $205 million of initial consideration plus a working capital adjustment and up to another $185 million in performance-based earn-outs, further increasing the importance of successful acquisition integration and disciplined capital allocation.

Coming to profitability, second-quarter operating expenses were $199 million, substantially exceeding the quarterly revenues of $83.8 million. While more than half of expenses were noncash or acquisition-related items, adjusted cash operating expenses still totaled approximately $93 million. Adjusted EBITDA remained a loss of approximately $51 million. The company expects the second quarter to represent the peak adjusted EBITDA loss, but actual profitability still depends on anticipated second-half revenue ramp materializing. Management expects some gross-margin pressure during the second half of 2026 because of product mix and excess capacity associated with newly acquired businesses.

However, the company expects adjusted EBITDA losses to narrow beginning in the third quarter and has pulled forward its profitability timeline. Management now targets adjusted EBITDA profitability for the operating platform, including OAS and Ondas Sentinel, by the fourth quarter of 2026 and company-wide adjusted EBITDA profitability by the fourth quarter of 2027.

That makes the next several quarters particularly important. Strong revenue growth without corresponding improvement in operating leverage would weaken the core thesis. Increasing competition in the already crowded drone space is another headwind.  

The Case for AVAV

AVAV began fiscal 2027 on a strong note. Fiscal first-quarter revenues of $480.5 million were up 6% year over year. The company secured $683 million in bookings during the quarter, with a book-to-bill ratio of 1.4 and trailing 12-month bookings surpassed $3 billion, with a book-to-bill ratio of 1.5. Funded backlog reached $1.5 billion at quarter-end, up 37% year over year, while total funded and unfunded backlog stood at more than $2.8 billion. Management said revenue visibility to the midpoint of its fiscal 2027 outlook stood at 86%.

The Autonomous Systems segment remains the company's principal growth engine. The segment delivered 21% year-over-year revenue growth, with Uncrewed Aircraft Systems revenues up 71%, driven by strong domestic and international demand for P550, JUMP 20-X and Puma. Precision Strike and Defense Systems revenues were up 8% year over year, supported by loitering munitions, one-way attack systems and Titan counter-UAS RF products.

Several recently secured programs could support long-term growth. Earlier in the year, AVAV received a $117 million U.S. Army award for its P550 under the Long-Range Reconnaissance program, which management estimates could represent roughly a $1 billion opportunity over the next few years. The company expects to deliver the “vast majority” of the $117 million award during fiscal 2027.

Counter-UAS is emerging as another important growth avenue. The company has secured a nearly $465 million contract for its LOCUST directed-energy systems under the U.S. Army's Enduring High-Energy Laser program and received the first international order for LOCUST systems through a direct commercial sale.  Management views LOCUST as a potential future franchise and believes the product line could become a more than $500 million annual business. The company is expanding its Albuquerque facility to meet anticipated demand.

AeroVironment, Inc. Revenue (Quarterly)

AeroVironment, Inc. revenue-quarterly | AeroVironment, Inc. Quote

AVAV is similarly investing ahead of demand across other product lines. Its new 200,000-square-foot Salt Lake City manufacturing facility is expected to support higher production of loitering munitions and is on track to open in spring 2027. This campus will have additional manufacturing capacity to meet increased demand for Switchblade product lines and other products across its portfolio.

The company is also expanding capacity in Huntsville for its Freedom Eagle-1 kinetic interceptor counter-UAS and investing $100 million in the Southern California campus.

AeroVironment reaffirmed fiscal 2027 revenues of $2.125-$2.225 billion, representing approximately 10% growth at the midpoint. Adjusted EBITDA is expected to be between $305 million and $325 million.

That said, AeroVironment has its fair share of challenges. Space, Cyber and Directed Energy segment revenues declined 21% year over year to $134 million in the fiscal first quarter, partly reflecting the termination of the SCAR contract and other discontinued government programs.

Cash generation is another area of concern. Fiscal first-quarter free cash flow was negative $36 million due to increasing capital expenditures. Management expects free cash flow to remain negative for fiscal 2027. Capex is projected at 12-14% of revenue as the company expands production capacity. However, management expects capital spending to begin returning toward more normalized levels after the current fiscal year. Exposure to the timing of U.S. government defense spending and stiff competition remain additional concerns.

Price Performance & Valuation for ONDS & AVAV

Year to date, both ONDS and AVAV are down 25.8% and 35.1%, respectively.

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ONDS trades at a forward 12-month price-to-sales ratio of 4.61X, higher than AVAV’s 3.43X.

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How Do the Consensus Estimates Compare for ONDS & AVAV?

For ONDS, earnings estimates for the current year have decreased 16.7% over the past 60 days.

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For AVAV, earnings estimates for the current year have been marginally lowered over the same time frame.

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ONDS or AVAV: Which Is a Better Pick?

Currently, ONDS carries a Zacks Rank #4 (Sell) while AVAV has a Zacks Rank #3 (Hold). 

In terms of the Zacks Rank, AVAV appears to be a better pick now. 

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.