The Catalyst
The Wall Street Journal reported Wednesday that the Trump administration is in active talks to fund US drone companies, including Unusual Machines and Sequoia Capital-backed Neros. Drone dominance was described as a "presidential priority" in the president's $1.5 trillion defense budget request for fiscal year 2027, the largest in US history.
The target: 300,000 low-cost attack drones by 2027. The Pentagon's Office of Strategic Capital is leading months-long discussions with private sector firms, and the proposed funding structure could include both debt and equity.
That structure matters. The government would potentially take ownership stakes in the companies it funds, a model closer to venture capital than traditional defense procurement.
On Thursday, five drone stocks are repricing the entire sector in real time.
Who Is Moving
AeroVironment is up around 19% to $215 on roughly double its average daily volume. The company carries a $10.8 billion market cap and is guiding for nearly $2 billion in fiscal 2026 revenue, up from $821 million in fiscal 2025. Recent quarters have been running above $450 million each.
AeroVironment makes the Switchblade loitering munition, one of the most battle-tested tactical drone systems in active US military operations. It also landed a $20 million Air Force Research Laboratory contract today for next-generation aerospace materials.
There is a nuance worth noting. AeroVironment's Switchblade costs roughly $100,000 per unit. The Pentagon's initiative specifically targets low-cost, disposable first-person-view attack drones, the kind that cost a few thousand dollars and have been devastatingly effective in Ukraine and the Strait of Hormuz.
AeroVironment's premium pricing may not fit the cheapest end of the program. But its manufacturing base and established Pentagon relationships position it for the integration and command-layer contracts that sit above the expendable units themselves.
Kratos Defense is up about 15% to $66 with a $12.4 billion market cap. The company is guiding for $1.7 billion to $1.76 billion in fiscal 2026 revenue across two segments: government solutions and unmanned systems. Q1 revenue came in at $371 million with a 1.6-to-1 book-to-bill ratio.
Kratos builds the Valkyrie autonomous combat drone, designed to fly alongside manned fighter jets as an AI-controlled wingman. The Marine Corps awarded Kratos and Northrop Grumman a $231.5 million contract to build Valkyries, with production ramping to about 40 units annually by late 2027. Of the five stocks moving today, Kratos carries the most diversified defense portfolio.
Red Cat Holdings is up roughly 36% to $14.55 on nearly 49 million shares, more than triple its average volume. Red Cat is small: 115 employees, $1.6 billion market cap. But it occupies the exact niche the Pentagon wants.
The company holds a $35 million Army contract for its Black Widow short-range reconnaissance system and is developing the FANG line of military FPV drones. Revenue surged 647% year over year last quarter as military adoption accelerated. When the defense budget says "low-cost attack drones," Red Cat's product line is what that language describes.
Unusual Machines is up about 64% to $30.82, hitting a new all-time high on 34 million shares traded. The stock sat at $4.81 a year ago.
Unusual Machines is one of the companies specifically named in the WSJ report as being in Pentagon funding talks. Donald Trump Jr. sits on its advisory board, which provides political access but also creates concentration risk tied to a single administration. Market cap just crossed $1 billion for the first time.
Ondas Holdings is up around 24% to $13.44 on extraordinary volume of 174 million shares. The company focuses on autonomous drone systems and wireless connectivity for industrial and government applications.
Ondas traded at $1 per share a year ago. The $6.7 billion market cap is running well ahead of current revenue, making this the most speculative name on the list.
Why Drones and Why Now
Three forces are converging.
The Iran conflict turned drones into the dominant weapon of this war. FPV drones have struck ships, military installations, and infrastructure on both sides of the Strait of Hormuz. The US shot down four Iranian drones targeting a commercial ship just this week. Drone warfare is the present reality, not a future concept.
The $1.5 trillion FY2027 defense budget signals a structural shift. The Pentagon is explicitly prioritizing mass production of cheap, autonomous drones over traditional platforms. A 300,000-unit target represents a different philosophy: high volume, expendable, and software-defined rather than expensive, exquisite, and irreplaceable.
The funding mechanism is unusual. Government equity stakes through the Office of Strategic Capital would give the Pentagon skin in the game beyond standard cost-plus contracts. For the companies involved, government capital means faster scaling. For taxpayers, equity participation means potential returns if the companies succeed.
The Risk Spectrum
The stocks moving today range from a $12.4 billion company with established Pentagon revenue to a company that was a penny stock 12 months ago. That spread tells you something about how the market is pricing this opportunity: wide and uncertain.
AeroVironment and Kratos carry the lowest execution risk. Both have existing defense relationships, manufacturing infrastructure, and revenue at scale. Red Cat sits in the sweet spot of what the Pentagon is requesting but has not yet proven it can deliver at the volume required. Unusual Machines and Ondas are the speculative end, where a single contract award can double the stock and a single quarter of missed expectations can cut it in half.
VonTrend's Best Defense Stocks guide covers the large-cap contractors like Lockheed Martin and RTX that will likely win the system-level integration work. The drone pure-plays are the higher-beta bet on the same defense spending wave.
What Comes Next
No contracts have been awarded. The companies named in the WSJ report are in discussions, not under agreement. Three things to watch: specific contract announcements from the Office of Strategic Capital, the FY2027 defense authorization bill moving through Congress, and whether the government equity model survives legal and political scrutiny.
The price action today is a signal, not a verdict. The sector just told you where it thinks the money is going.
