What happened

Shares of AeroVironment (AVAV 1.30%), a maker of small drones (and, occasionally, very large drones) are soaring in Thursday morning trading on the Nasdaq, up 13.6% through 10 a.m. EDT. The most obvious reason for the surge is the news that AeroVironment has just received an upgrade to outperform from the analysts at investment bank William Blair, which has investors feeling optimistic about the stock.

But that still leaves the question of why William Blair upgraded AeroVironment in the first place.

Sunglider's right wing viewed over Earth

Is this the big reason AeroVironment stock is up so much? A glider so big you can barely fit one wing in a photo? Image source: AeroVironment.

So what

None of our usual sources for upgrade reports has a lot of detail on Blair's AeroVironment upgrade yet. Both StreetInsider.com and TheFly.com confirm that the upgrade happened, but say nothing more.

Still, we can speculate.

This morning, AeroVironment announced that its new "Sunglider solar-powered high-altitude pseudo-satellite (HAPS)" drone -- i.e. a drone that flies so high you might as well call it a satellite -- has completed a 20-hour test flight at literal stratospheric heights -- more than 60,000 feet above sea level. While up there, the drone demonstrated its ability to function as a pseudo-communications satellite, communicating with the ground via video calls over broadband internet.  

Together with its joint venture partner Softbank, AeroVironment is developing Sunglider to function as a communications satellite alternative, able to fly at 12-mile heights for months at a time, providing pseudo-satellite communications links to places on Earth that lack such coverage. Presumably, it's this prospect that has William Blair -- and most investors -- excited about AeroVironment today.

Now what

I think that's a bad call. SpaceX is already well under way toward building a 12,000-comsat constellation orbiting Earth to perform the same task AeroVironment is driving at. Given the speed of its deployment, I suspect AV's solution will end up being obsolete long before it's commercially viable.

I think the much bigger AeroVironment news was its announcement, a week ago, that it is expanding development and sale of its "Switchblade" kamikaze drone fleet, which has proved so popular with the U.S. military. The addition of a new Switchblade 600 low-altitude model with improved sensors and more than twice the flight time, to me, offers a more immediate prospect of AeroVironment growing its revenue stream and justifying its high 42-times-earnings valuation.

But that's just me. When AV announced the Switchblade news earlier this month, the stock barely edged up 2.5% -- far less than today's 13.6% run higher. For most investors today, it seems AV is all about the Sunglider.