Why AeroVironment Stock Zoomed Nearly 8% Higher on Tuesday

Drone specialist AeroVironment (NASDAQ: AVAV) saw its stock gain notable altitude on Tuesday, thanks to an update from the company on a lucrative government contract. The company's share price soared almost 8% higher on the day, comparing very favorably to the S&P 500's (SNPINDEX: ^GSPC) relatively marginal (0.7%) rise.

More Switchblades on the way

AeroVironment announced just after market close on Monday that it had been awarded a new delivery order for its Switchblade loitering munition systems. This is part of a broader contract worth as much as $990 million from the U.S. Army, totaling $288 million worth of the well-reputed drone system. It is also the third delivery order within the Army's directed requirement for lethal unmanned systems contract.

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In the press release divulging the news, AeroVironment quoted its general manager of loitering munition systems Brett Hush as saying that his company continues "to deliver for the U.S. Army with our superior supply chain and manufacturing capacity."

The contract was awarded to AeroVironment in August 2024, and it was by far the largest in the company's history. The Pentagon was clearly eager to partner with AeroVironment, as the language of the contract all but specified a call for Switchblades.

Justifiable popularity

AeroVironment is a popular defense stock these days, and for good reason. Drones have become a near-indispensable weapon of war, as evidenced by their heavy use in the Ukraine-Russia war. The company is on the cutting edge of military technology, and especially with the Army contract, it should remain a high-profile and important supplier.

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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends AeroVironment. The Motley Fool has a disclosure policy.