Red Cat, Kratos and Unusual Machines Are Surging — Is This the Start of a Drone Stock Supercycle?

TLDR

• The Trump administration is in talks to provide loans and possible equity stakes to U.S. drone companies
• The Pentagon’s Drone Dominance program targets 300,000 low-cost drones by end of 2027 with a $1.1 billion budget
• Unusual Machines surged 33%, Red Cat Holdings gained 13%, Kratos rose 8.4% on the news
• Potential funding candidates include Unusual Machines, Performance Drone Works, and Neros Technologies
• Ondas Holdings completed a $196.6 million acquisition of defense software firm Omnisys, expanding beyond hardware

The Trump administration is in active talks to provide direct financial support to several U.S. drone companies, according to a Wall Street Journal report. The potential deals could include a mix of debt and equity stakes, which would give the government an ownership share in some firms. No final terms have been set.

The news sent drone stocks sharply higher in premarket trading on Thursday. Unusual Machines jumped 33%. Red Cat Holdings gained 13%. Kratos Defense rose 8.4%. AeroVironment climbed 8%. AgEagle Aerial Systems added 11.7%. ZenaTech rose 10.5% and Ondas Holdings gained over 9%.

Unusual Machines, Inc., UMAC

The Pentagon’s Drone Dominance Program

At the center of the effort is the Pentagon’s Drone Dominance program. The $1.1 billion initiative aims to build a stockpile of roughly 300,000 low-cost attack drones by end of 2027.

The U.S. currently builds around 100,000 drones per year. For context, Ukraine produced around four million drones last year. Many U.S.-made drones cost tens of thousands of dollars more than the Pentagon’s target price of $5,000 each.

The funding is intended to help companies scale production and bring costs down. The Pentagon has requested more than $54 billion for its drone division, the Defense Autonomous Warfare Group, up from around $225 million this year.

The companies named as potential funding candidates are Performance Drone Works, which holds an Army reconnaissance drone contract, Neros Technologies, a Sequoia Capital-backed startup, and Unusual Machines, a drone parts supplier.

Unusual Machines has ties to Donald Trump Jr., who serves as a shareholder and advisory board member. The company’s partner Powerus was also selected for Phase II of the Drone Dominance Program with its MatrixFold drone platform.

How Individual Stocks Are Positioned

Red Cat builds small battlefield surveillance drones. The company has been scaling production of its Black Widow drone and adding AI features. Its stock is up over 34% year-to-date.

Kratos makes larger autonomous combat aircraft, including the XQ-58A Valkyrie. It reported 22% revenue growth in its first quarter. Its stock is down 24% year-to-date.

Ondas Holdings recently completed its $196.6 million all-stock acquisition of Omnisys, a defense software company. The deal moves Ondas beyond drone hardware into military software systems.

Volatus Aerospace was selected to advance to the next phase of the U.S. Drone Dominance Program as well. The program plans to procure more than 300,000 low-cost autonomous systems over approximately two years.

Palantir provides AI and data analytics software used in defense and battle management. Larger contractors including Northrop Grumman, Lockheed Martin, and Leidos also carry exposure through their autonomous systems programs.

Before Trump’s second term, Pentagon drone purchases made up less than 2% of all U.S. commercial and government drone sales annually. That figure is now expected to rise as defense spending accelerates through 2026 and beyond.

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