What happened

Shares of AgEagle Aerial Systems (UAVS -15.07%) jumped as much as 27% on Friday morning after the drone maker said its subsidiary had been selected, along with other vendors, to work with the Defense Department. There appears to be no new revenue coming from the selection for now, but in time, it could open up new possibilities for the young company.

So what

It's been a remarkable couple of years for AgEagle, which just over a year ago was a penny stock valued by the market at less than $10 million. Its market capitalization jumped to nearly $1 billion earlier this year on rumors AgEagle was working with Amazon on a retail delivery drone.

A drone flies over a field.

Image source: Getty Images.

Those hopes have largely cooled, but AgEagle continues to look for ways to diversify away from just providing drones that help farmers with crop management and monitor fields for drug-enforcement agencies. On Friday, AgEagle said its SenseFly subsidiary had been named to a list published by the Pentagon's Defense Innovation Unit (DIU) earlier this month.

SenseFly, along with 10 other companies, will work with the DIU to set standards and prototype new approval processes for small drones. As part of the process, SenseFly completed two demonstrations for U.S. government officials.

The SenseFly eBee TAC UAV used in the demonstrations weighs just 3.5 pounds and is hand-launched, and provides the ability to quickly map an area. AgEagle said SenseFly was selected from a pool of more than 100 potential applicants for the program.

"Through senseFly's innovative eBee TAC, AgEagle believes our company can become an important player in the [unmanned aircraft system] domestic industrial base for the U.S. and its allies, helping to ensure delivery of secure drone mapping and scouting solutions that the DoD and other government entities will come to depend on," AgEagle CEO Brandon Torres-Declet said in a statement.

Now what

The selection is a positive development, but investors appear to be getting ahead of themselves. At best, the SenseFly selection opens the door to the potential for new business, and arguably, much of whatever new business SenseFly is able to attract from the government is already priced in.

UAVS Chart

UAVS data by YCharts.

Although AgEagle shares are well off their highs, this is still a company valued by the market at more than $200 million despite generating just $1.94 million in revenue in the most recent quarter. Until AgEagle is able to convert this potential into real results, I'd advise investors not to get too caught up in the excitement.