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| By Michael A. Robinson |
When we spoke on Nov. 22, I told you how an aggressive startup is using AI to shake up the military drone market.
You may recall that Shield AI had just recently won a contract worth $200 million to support Ukraine in its war with Russia.
Fact is, Ukraine has made effective use of this technology, and it’s one of the key reasons why a smaller nation — outmanned and outgunned — has kept up the fight against one of the world’s largest militaries for more than two years.
Here’s the thing. As much as I believe in the military drone sector that Grand View Research projects to have a value of $70 billion by 2030, it does raise one big question: How do you defend against them?
Fact is, global militaries are all in on drones. Meaning the U.S. needs a way to thwart those launched by such adversaries as China, Iran and terrorist groups.
That’s where anti-drone technology comes into play. Fortunately, the U.S. is working with a defense leader that excels at this mission.
Let me show why this storied leader just nearly doubled its earnings growth.
Unmanned & Lethal
A decade ago, drones were just starting to make their mark in Iraq and Afghanistan.
These were the big, high-altitude drones like the Predator and Reaper that would sit at 30,000 feet, watch targets and then move into position to strike.
Smaller drones were used by advancing troops in urban settings to see what lay ahead on the road or in the town they were advancing on.
But they were more an accessory than a default system.
That has all changed. And there’s no place where that’s clearer than Ukraine. As we discussed two weeks ago, this is the "AI moment" for drones in warfare.
Unmanned aircraft serve as a fundamental weapon of militaries around the world including the U.S., China, Russia and Israel, as well as terrorist groups.
What’s happening now is there are two types of drones being fielded — cheap and easily modified and more expensive but more powerful.
“Cheap” Drones Wreak Havoc
For example, terrorists like the Houthis operating in the Red Sea can tweak cheap drones for suicide launches for as little as $2,000.
They aren’t nearly as stealthy or lethal as military-grade drones. But if a $2,000 drone can take out a $3 million tank, cripple a frigate or strike fear into soldiers or sailors, the value of that drone is immense.
That’s why militaries and non-state actors around the world are acquiring as many cheap drones as possible if for no other reasons than that they are much cheaper than a multimillion- dollar unmanned aerial vehicle.
The Houthi rebels and the Ukrainians have been especially resourceful in using off-the-shelf drones for suicide attacks, reconnaissance, bombing raids or as a presence to unnerve infantry camps.
But drones in general are now active in all conflicts, which means that if everyone is using them, it’s necessary for everyone to defend against them.
The Anti-Drone Leader
That’s why I’m glad to introduce you to RTX (RTX), formerly known as Raytheon Technologies. It’s a defense leader with deep expertise in anti-drone warfare.
RTX has been a pioneer in missile and guidance technology for decades. It makes the Patriot anti-missile system that has been deployed around the globe since 1984.
The Patriot system (with regular upgrades since the original) remains one of the most in-demand systems for taking large missiles and drones out of the air.
To that point, both Ukraine and Israel have recently added these systems to their anti-missile arsenal to great success.
But RTX isn’t resting on its laurels. It continues to develop next-generation systems to address today and tomorrow’s drone-filled conflicts.
For example, RTX has fielded a new radar system that works with Patriots called GhostEye for hypersonic weapons.
And there’s another dynamic duo specifically for drones, the KuRFS radar and Coyote interceptor.
There’s also the Phaser high-power microwave system that uses directed energy to down drones and drone swarms.
And when it comes to thwarting drone swarms that overwhelm defensive positions, the firm recently developed a powerful laser that can be mounted on a pickup truck or ATV and paired with a tracking system to do just that.
Just weeks ago, RTX won a $676 million contract with the U.S. Army to continue to supply it with a highly prized tube-launched, optically tracked, wireless-guided (TOW) anti-tank weapon system.
Ready to Write the Next Chapter
Over the past three years, earnings growth was a little weaker than I would like to have seen as the company invested in building out its franchise.
Plus, the mega merger with United Technologies in 2020, primarily for its Pratt & Whitney engine division, was going to take some time to absorb into the company.
It also merged its two operating divisions into one unit during this time.
As you can imagine those costs ate into profit margins.
But in the most recent quarter, the company really began to shine.
Gross sales increased some 49% from the year-ago quarter. Even better, it was a classic beat-and-raise quarter, boding well for our investment thesis.
The cherry on top: Earnings growth nearly doubled to 16%.
On top of all that, RTX closed the quarter with a backlog of orders totaling $221 billion, giving it a long runway for growth.
In other words, this is a company that you can count on to do well not just in the next four years under Trump’s likely defense buildup … but for the long haul as drone use and anti-drone tech expand around the world.
Best,
Michael A. Robinson
P.S. AI is clearly the answer to advanced drone — and anti-drone — technology. But for even larger profit potential, I dug deeper to find what’s “Beyond AI.” Here’s what I found.
