The drone sightings above New Jersey, New York and other states are still somewhat of a mystery, but one outcome of the story already seems clear: "a surge in counter-drone investments by local and state government agencies" in coming years, William Blair analyst Louie DiPalma wrote in a Tuesday note. Axon Enterprise (AXON), CACI International (CACI), AeroVironment, Leonardo DRS (DRS) and Raytheon (RTX) are among the industry leaders in the drone detection market, he says.

One of those companies or privately-held rivals have already been called into action. DiPalma notes that New York Gov. Kathy Hochul said Sunday that federal agency partners will provide New York with a "state-of-the-air" drone detection system as the Empire state responds to drone activity in its own skies and that of neighboring New Jersey. Hochul didn't disclose the company supplying the drone detection systems.

Drone Activity Proliferates

William Blair analysts don't think there really is much of a mystery. "We believe this drone incident is a byproduct of the widespread proliferation of drones within society," DiPalma writes.

"Beyond the Ukraine, Israel, and Red Sea battlefields, drones are being used by first responders, e-commerce logistics providers, film production teams and recreational flyers." At the same time, "counter-drone technologies are increasingly being used by local and state law enforcement to protect stadiums, airports, prisons and other public settings."

Axon, AeroVironment Drone Acquisitions

Axon is on William Blair's list of industry leaders by virtue of its acquisition of Dedrone. In a blog post upon completion of the deal in October, Axon wrote, "With Dedrone, public safety and defense teams can detect, track, and, when necessary, neutralize rogue drones in real time, ensuring both public spaces and sensitive areas remain secure."

In November, AeroVironment announced a $4.1 billion deal to acquire BlueHalo, which was already on track to generate more than $900 million in revenue this year.

Drone Stocks: Axon, AVAV

Axon stock has a 99 IBD Composite Rating on a scale of 99, according to IBD Stock Checkup. The Composite Rating is single rating that combines technical and fundamental factors.

Axon is also part of the IBD Leaderboard portfolio of elite stocks, as well as the IBD 50 list of leading growth stocks.

The Nasdaq 100 is set to add Axon stock effective Dec. 23. Following the news, Axon edged up 0.7% in Tuesday's early stock market action.

AVAV jumped 7.9% on Monday, amid interest in drone stocks stirred by the Northeast U.S. drone sightings.

However, AVAV also had some other tailwinds. The Government Accountability Office denied a rival's protests over award of a $990 million U.S. Army contract for its Switchblade 600 drone. Also, Greece approved a $79 million Switchblade order over the weekend, following Taiwan's recent approval of a $60 million order, DiPalma wrote in a separate note.

Raytheon edged up 0.3%, while DRS rose 1.8%.

Other drone-related stocks moving on Monday included Kratos Defense & Security Solutions (KTOS), which rose 5.4%, Red Cat Holdings (RCAT) 27% and Unusual Machines (UMAC) 17.9%.

Be sure to read IBD's The Big Picture column after each trading day to get the latest on the prevailing stock market trend and what it means for your trading decisions.

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