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AeroVironment (AVAV) is plunging lower following its 2Q26 report as investors look past spectacular top-line growth and focus instead on a sharp EPS miss, a dramatic gross margin reset, and a lower-than-expected FY26 outlook. While management highlighted record awards, bookings, and strong multiyear demand signals, the mix and margin dynamics tied to the BlueHalo acquisition, and a heavier services footprint materially changed the earnings profile versus what the market was expecting.

• Revenue surged 151% yr/yr to $472.5 mln, comfortably ahead of expectations, driven by the inclusion of BlueHalo and 21% organic growth from legacy AVAV.
• Gross margin was the key negative surprise, collapsing to 22% (27% adjusted) from roughly 39–41% a year ago.
• The margin compression was driven primarily by a higher mix of lower-margin service revenue, increased amortization and other non-cash purchase accounting expenses from BlueHalo, one-time operational inefficiencies tied to the Oracle Fusion ERP go-live and the U.S. government shutdown.
• Autonomous Systems revenue was $301.6 mln, led by 38% growth in Precision Strike and Counter-UAS (Switchblade 600, Titan) and strong JUMP 20 growth.
• Cyber and Directed Energy delivered revenue of $170.9 mln with 20%+ growth in Space and Directed Energy (LOCUST, laser comms) offset by weakness in Cyber and Mission Systems due to program discontinuations and shutdown impacts.
• Bookings were a standout at nearly $1.4 bln, supported by $3.5 bln of total contract awards, with funded backlog at $1.1 bln and unfunded at $1.8 bln, equating to 93% “visibility” to the revenue guidance midpoint once expected funding is included.
• AVAV still expects adjusted gross margin to improve through the year, targeting the high-30s by Q4 and low-30s for FY26 overall.
• FY26 EPS guidance was cut to $3.40–3.55, with the reduction driven mainly by a higher projected tax rate after the updated BlueHalo purchase price allocation, layered on top of mix-driven margin pressure. 
• AVAV raised the low end of its revenue guidance to $1.95–2.00 bln (about 15% growth vs. pro forma FY25).

Briefing.com Analyst Insight

AVAV’s 2Q26 print underscores a classic growth-vs-profitability tug-of-war. The company is winning major programs and building a powerful, multi-domain defense tech platform, but the BlueHalo-driven mix shift and tax headwinds have reset the near-term EPS algorithm. The combination of a 17-point gross margin compression, lower EPS guidance, and a heavily back-weighted 4Q earnings ramp is overshadowing the record bookings and robust demand narrative, prompting a sharp reset in the stock after a strong run into the print. Even so, record awards, strong visibility, and expanding sole-source and multiyear positions in loitering munitions, counter-UAS, space, and directed energy suggest the long-term growth story remains intact if management can execute against the back-half ramp and deliver on the promised margin recovery.