The commercial drone industry is taking off and is likely to get a big lift once the Federal Aviation Administration completes its regulations for small unmanned aerial systems by late spring, Piper Jaffray said in a research report Monday. The buzz was positive at the Xponential 2016 conference, sponsored by the Association for Unmanned Vehicle Systems International and held May 2-5 in New Orleans, Piper Jaffray analyst Troy Jensen said. The annual event is the largest drone trade show in North America. “Following conversations with the leading companies in the space, our biggest takeaway was demand for drone hardware, software and services continues to inflect, as more and more companies are realizing the value this still-emerging technology can add,” Jensen said. “We were also very encouraged to hear most in the industry are confident the FAA will release the long-awaited small UAS ruling by ‘late spring.’ “That said, we continue to believe we are in the early innings of a multibillion-dollar market opportunity, and expect the industry to see a bigger inflection once favorable regulation is put in place.” Historically, the Xponential trade show has focused on military applications for drones, but the fast-growing commercial drone industry has shifted the focus of the show to enterprise applications. Companies at the show included Aerialtronics, AeroVironment ( AVAV ), Aeryon Labs, Agribotix, AirRobot, Airware, DJI, DraganFly Innovations, Kespry, MicaSense, PrecisionHawk and Pulse Aerospace. Of those, only AeroVironment of Monrovia, Calif., is publicly traded. Jensen rates AeroVironment stock overweight, with a price target of 36. AeroVironment stock fell 1.3% to 28.11 on the stock market today . “Although revenue levels for most drone companies remain sub-$10 million on an annual basis, we were told by more than one company they have recorded more revenues in Q1 than they did in all of 2015,” Jensen said. 2.7 Million Commercial Drones Expected By 2020 The FAA estimates that annual sales of drones for commercial purposes will grow from 600,000 in 2016 to 2.7 million by 2020, he said. Amazon.com ( AMZN ) is among companies experimenting with using drones for delivering products to customers, but many hurdles remain and it’s too early to say when this might become a reality. The FAA’s small UAS regulations are expected to allow drones weighing under 55 pounds to fly commercially without having to file for certain exemptions. The rules should make it easier and faster for businesses to fly drones for most applications, Jensen said. Meanwhile, the FAA predicts that sales of consumer drones for hobbyists will grow from 1.9 million in 2016 to as many as 4.3 million in 2020. The consumer drone market, however, has become highly competitive, with aggressive price competition. China-based DJI is the leader in the consumer drone market. Piper is aware of two companies that intended to release a consumer drone in 2016 but decided to delay their product launch or not go forward because the market opportunity is not as lucrative as it was before, Jensen said. In addition to those two companies, action-camera maker GoPro ( GPRO ) last week announced that it is delaying the release of its Karma drone from Q2 until the holiday shopping season. Piper analyst Erinn Murphy on Monday reiterated her underweight rating on GoPro stock, with a price target of 6.50. GoPro stock tumbled 6.6% to 9.77 on Monday. That’s its lowest price in nearly three months and is close to its all-time low of 9.01, reached on Feb. 4. “We believe companies such as GoPro who have yet to launch a consumer drone could have a tough time, because as many category leaders have already found (DJI, Parrot etc.), developing a drone autopilot is not easy and typically takes second- and even third-generation models to develop a bug-free drone,” Murphy said. “At the time GoPro launches its drone this holiday, we are concerned that pricing could be an issue given how competitive pricing has already been for its major peers.” Piper’s Jensen says the drone market is likely to see a lot of consolidation over the next couple of years. “This consolidation will include bigger companies, not in the market today, acquiring already established players in order to take advantage of the growing market opportunity, as well as smaller companies merging in order to penetrate different areas of the market,” he said. “Over that same time period, we also believe new companies will be entering the market and private equity money will continue to flow in.” RELATED: Drone Delay Bad Karma For GoPro; Stock Skids On Q1 Report