The DroneShield Ltd (ASX: DRO) share price has been on quite the rollercoaster this year.
Shares in the S&P/ASX 300 Index (ASX: XKO) drone defence company closed yesterday at 70 cents apiece after management announced an $8.2 million repeat order from a major European military customer.
As you can see on the chart above, that puts the DroneShield share price up 120% since this time last year.
As you can also see, the past five months have been mostly on the downhill part of the rollercoaster ride. Good fun in an amusement park. Not so much in the world of stock investing.
Since closing at $2.60 a share on 15 July, the drone defence stock has plunged 73%.
The growing importance of AI
Technology has long played a vital role in military offensive and defensive capabilities.
But artificial intelligence (AI) has only really become a key focus in the last few years.
This means that the future of the DroneShield share price is likely to depend heavily on how the company manages to roll out the rapidly changing technology into its equipment.
At DroneShield's half-year results, the company noted, "AI systems are transforming the character of warfare by making it faster, more precise and less reliant on human decision-making."
Management also pointed out that:
AI systems are increasingly being used to autonomously identify and engage targets while minimising collateral damage. As AI becomes more sophisticated, its integration into military operations will only deepen, necessitating advanced countermeasures.
To date, the DroneShield share price has likely gotten support from the company's investments in AI.
"DroneShield is at the forefront of current generation C-UxS and developing next-generation counter-drone systems underpinned by cutting-edge proprietary AI-based software," the company stated.
Which brings us to Skynet, or rather ChatGPT.
Headwinds ahead for the DroneShield share price?
As Bloomberg reports, OpenAI, creator of ChatGPT, and weapons maker Anduril Industries (valued at US$14 billion) are linking up to incorporate cutting-edge AI into Anduril's anti-drone systems.
With Anduril tapping into OpenAI's tech to improve its systems in combating drone and other "aerial threats", and OpenAI, in turn, using incoming data to upskill its AI capabilities in the defence realm, DroneShield could be facing some deep-pocketed competition.
And that could put further pressure on the DroneShield share price in 2025.
Commenting on the partnership, OpenAI CEO Sam Altman said:
Our partnership with Anduril will help ensure OpenAI technology protects US military personnel and will help the national security community understand and responsibly use this technology to keep our citizens safe and free.
