Key Points
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Companies manufacturing drones, satellites, batteries, and electric air taxis stand to benefit from the low altitude opportunity.
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Companies such as Archer Aviation, Joby Aviation, and numerous defense contractors will be the obvious winners from rising investment in low altitude services.
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A different Cathie Wood artificial intelligence (AI) stock could become the biggest winner of all from the low altitude market in the long run.
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10 stocks we like better than Palantir Technologies ›
As far as megatrends are concerned, artificial intelligence (AI) is the biggest theme fueling excitement in the technology sector right now. For the most part, the rise in AI has been largely connected to heavy investments in data centers, semiconductor chips, and enterprise software platforms so far.
However, AI has the potential to disrupt several different industries — many of which are seldom spoken about today.
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In a recent investor note, investment bank Morgan Stanley identified the low altitude landscape as an interesting and largely overlooked opportunity in the market today.
Let’s explore what constitutes the low altitude market and which companies are seen as potential beneficiaries. From there, I’ll reveal my top pick to capitalize on the opportunity — which I think is flying under the radar right now.
Breaking down the low altitude market
Per Morgan Stanley’s note, two of the largest categories propping up the low altitude market are electric vertical takeoff and landing (eVTOL) aircrafts and drones. According to the bank’s estimates, the low altitude market could be worth $9 trillion by 2050.
Companies such as Archer Aviation or Joby Aviation are some of Wall Street’s most popular names in the eVTOL market. In addition, Tesla could be seen as an outside winner from scaling low altitude aircraft given the company’s advanced battery technologies. Moreover, other Elon Musk companies such as SpaceX and Starlink could potentially become increasingly involved with defense contracting as it pertains to building satellites or drones.
Interestingly, Tesla, Archer, and Joby have all earned a spot in Cathie Wood’s Ark Invest portfolio.
However, I see another top stock in Ark’s portfolio that is better positioned than the companies above to capitalize on the low altitude mobility market.
Image source: Getty Images.
Which Cathie Wood stock is flying under the low altitude radar?
Another large position in Wood’s portfolio is data mining darling Palantir Technologies (NASDAQ: PLTR). Palantir has emerged as one of the hottest names fueling the AI revolution thanks to its popular software platforms.
Many investors associate Palantir with the defense sector due to the company’s close ties to the U.S. military. But outside of the Department of Defense (DOD), Palantir has also forged a number of unique strategic relationships in commercial defense contracting.
For example, Palantir works with leading drone companies Red Cat Holdings and Anduril. Archer also recently partnered with Palantir in an effort that focuses on designing next-generation aviation systems.
Is Palantir stock a buy right now?
As the chart below illustrates, Palantir currently trades near a record-high price-to-sales (P/S) multiple of 111. Given the prolonged expansion in Palantir’s valuation, I think shares are due for a pullback sooner rather than later. While I think the stock may be overbought at the moment, I remain optimistic about Palantir’s future and its potential to use its technical expertise to continue forming use cases beyond traditional data analytics for enterprises.
PLTR PS Ratio data by YCharts
I see the low altitude opportunity as one that bridges the aviation and defense industries — two industries not traditionally considered core AI markets. In this context, Palantir is uniquely positioned to scale both its commercial and government operations as low altitude services become more digitized — including areas such as commercial aviation, autonomous systems development, and logistics coordination in defense environments.
I’d like to note that this is my perspective on how technology can transform legacy industries. While Palantir’s software tools are used by the U.S. military, the applications generally revolve around data aggregation, efficient decision-making, and safety protocols.
Although I would pass on buying the stock at its current price, I would not sleep on Palantir’s ability to transform its business by parlaying its current infrastructure with more sophisticated and emerging opportunities that also touch AI, but remain overlooked at the moment.
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Adam Spatacco has positions in Palantir Technologies and Tesla. The Motley Fool has positions in and recommends Palantir Technologies and Tesla. The Motley Fool has a disclosure policy.
