The exploding commercial use of drones globally is offering huge, new investment opportunities, fund manager Brad Slingerlend writes in Barron's. In the wake of Hurricanes Harvey and Irma, for example, drones are being deployed to assess damage, to prioritize rebuilding, and to assist search and rescue missions for humans and livestock alike. 

Slingerlend manages the $2.1 billion Janus Henderson Global Technology Fund (JNGTX), which had delivered a year-to-date total return of 34.6%, better than 80% of the funds in its category, as of the opening of trading this week, according to Morningstar Inc.

Look at Supporting Players

Investors seeking to profit from this soaring market are best advised to look beyond the drone manufacturers themselves, Slingerlend writes. Microprocessors are a key component, and he expects big beneficiaries to be chipmakers such as Texas Instruments Inc. (TXN), Xilinx Inc. (XLNX), and Microchip Technology Inc. (MCHP).

Additionally, he suggests buying the companies offering the cloud computing services used to store and analyze the vast amounts of data drones collect. These providers include Amazon Web Services from Inc. (AMZN), Microsoft Azure from Microsoft Corp. (MSFT), Alibaba Group Holding Ltd. (BABA), and Google parent Alphabet Inc. (GOOG).

The Big Potential: Applications

Even bigger profit potential might be realized by the makers of hardware or the developers of software that can guide drones in the execution of specialized tasks. Some companies already create software for drones used in construction and surveying. As a result, agricultural machinery manufacturer Deere & Co. (DE) recently announced its intent to buy a startup that uses artificial intelligence (AI) to pinpoint the use of pesticides or weed killers, a process that should be less costly and more efficient with drones than with tractors, Slingerland notes. Expect to see drones resold by Deere for this very application. Moreover, creating analytic packages that use data gathered by drones is a market niche for yet other companies.

Why Not Drone Makers?

Investing in the leading drone makers themselves presents some challenges, Slingerlend notes. Two of the biggest manufacturers, DJI and Yuneec International, are closely-held Chinese companies. Meanwhile, Boeing Co. (BA), Lockheed Martin Corp. (LMT) and AeroVironment Inc. (AVAV) produce drones largely as defense contractors, and only AeroVironment manufactures unmanned aircraft as its principal line of business. (For more, see also: Drone Wars: Why Intel and GoPro Are Losing.)

Lucrative Market

The market for services provided by drones has been estimated at $127.3 billion by public accounting and consulting firm PriceWaterhouseCoopers LLC, per Slingerland. European aerospace company Airbus SE (AIR.France) is moving to deliver drone-based services to clients in agriculture, insurance, energy and government, with a total market potential of more than $120 billion, per its own estimates, he says.

The Federal Aviation Administration (FAA) projects that more than 400,000 commercial drones will be in service by 2021. Uses already underway range from package or food delivery, to expedited movement of critical medical supplies in remote areas, to surveillance for the military and law enforcement, to inspection and eventually repair (once 3D printing technology advances) of far-flung infrastructure such as offshore wind farms.