The wars in Ukraine and Iran have exposed a clear gap in how the US military fights. For decades, the strategy was simple: spend more, build better. The F-22 fighter jet costs $150 million. A B-2 Stealth Bomber costs $1 billion. Aircraft carriers run $13 billion each.
But Iran’s Shahed drones, costing a few thousand dollars each, managed to shut down the Strait of Hormuz. That single choke point handles a huge share of the world’s oil supply. The US and Israel destroyed much of Iran’s conventional military, but couldn’t stop decentralized drone production.
In Ukraine, homemade drones have destroyed thousands of Russian tanks and killed tens of thousands of troops, turning what Russia expected to be a quick invasion into a years-long stalemate.
The math is hard to ignore. The US fired hundreds of million-dollar interceptor missiles in days during the Iran conflict. Replacing those stocks takes months. That reality is partly behind President Trump’s proposed $1.5 trillion defense budget for fiscal 2027, up around 50% from the year before.
The Defense Autonomous Warfare Group, known as DAWG, is the clearest sign of where the money is going. Its budget is set to rise from $225 million to $55 billion in a single year. Analyst Louie DiPalma from William Blair estimates the US market for lower-cost drones at nearly $100 billion annually.
The US government has also banned civilian drones made by DJI, the Chinese company with over 70% market share. The move was a signal to American industry: start building.
Ukraine launched its largest-ever drone assault on Russia last week. Over 200 drones hit Moscow, disabled a major oil refinery, and forced airports to suspend operations. The attack pushed drone stocks and related ETFs back into the spotlight.
Analysts say the best drone investments are companies with battle-tested products. Four stocks meet that standard: AeroVironment, Aevex, Red Cat Holdings, and Swarmer.
AeroVironment has been supplying drones to Ukraine since early in the conflict. Its Switchblade loitering munitions have taken out Russian tanks. The company expects around $2 billion in sales in 2026, rising to $2.4 billion in 2027. Of 20 analysts covering the stock, 17 rate it a Buy.
Red Cat makes reconnaissance and attack drones, including systems that work without GPS. Its maritime division also produces the Variant 7 drone, modeled on Ukrainian technology. All analysts covering the stock rate it a Buy. One analyst has a price target of $19, nearly double its recent price of $10.50.
Swarmer builds command-and-control software that lets one operator control an autonomous drone swarm. Its tech has been used hundreds of thousands of times in Ukraine missions. The company went public in March with a market cap of $500 million. Its sole analyst rates it Buy with a $60 price target, implying 33% upside from a recent $45.
Aevex makes the Phoenix Ghost, a kamikaze drone that can loiter for up to six hours before striking. Around half its 2026 revenue of $606 million is expected to come from Ukraine, though that may shift as Ukraine moves from importing to exporting drones. All nine analysts covering Aevex rate it a Buy.
Ondas is another name in the space. Its Iron Drone Raider catches incoming drones in a net. The company also supplies radio signal jamming tech. Its analyst rates the stock Outperform with a $16 target, up from a recent $9.
On the ETF side, the Defiance Drone and Modern Warfare ETF and the REX Drone ETF both hold several of these names and have seen increased trading volume following the Moscow attack.
Traditional defense contractors like Lockheed Martin and Northrop Grumman underperformed during the Iran conflict, falling 18% and 14% respectively while the S&P 500 gained 8%. Still, analysts note those companies are not going away. The Air Force still plans to buy thousands of advanced autonomous aircraft, and Lockheed recently expanded its venture fund from $400 million to $1 billion to invest in emerging defense tech.
The global military drone market was valued at $47.4 billion at the end of 2025 and is projected to reach $98.2 billion by 2033.
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