Drone Stocks Soar on Pentagon's Bold New Strategy: A Closer Look at the Winners

The US Department of Defense's memo on increasing drone production and use led to a surge in shares of drone stocks, including Red Cat (NASDAQ: RCAT), which rose 26% and 20% after the news. Kratos Defense and Security Solutions (NASDAQ: KTOS) also saw shares rise nearly 12% due to the memo's focus on low-cost drones and technological leapfrogging. The memo aims to equip every squad with cheap and expendable drones by the end of 2026, providing significant growth opportunities for these companies.

The U.S. Department of Defense's recent memo on increasing drone production and use has led to a significant surge in shares of several drone stocks. The memo, titled "Unleashing U.S. Military Drone Dominance," outlined a vision for enhanced U.S. drone capabilities and production, particularly focusing on small drones.

One of the most notable beneficiaries was Red Cat (NASDAQ: RCAT), which saw its shares rise by 26% and 20% on July 11 and July 14, respectively. The memo's emphasis on small drones and the shift in policy to treat these drones as consumable commodities rather than durable property has positioned Red Cat for substantial growth. The company's Black Widow drone was recently selected as the winner of the U.S. Army’s Short Range Reconnaissance (SRR) Program of Record, further solidifying its position in the market [1].

Kratos Defense and Security Solutions (NASDAQ: KTOS) also experienced a significant boost in its shares, rising nearly 12% on July 11. The memo's focus on low-cost drones and technological leapfrogging aligns with Kratos' offerings, particularly its advanced jet drones like the XQ-58A. The company's emphasis on affordability and its role in providing target drones for training simulations makes it a prime partner for the U.S. military. Kratos is forecasting between $240 million and $250 million in target drone revenue in 2025, which could see a substantial increase given the memo's emphasis on training [1].

AeroVironment (NASDAQ: AVAV) also gained 11% on July 11, driven by the memo's overall positive outlook for the drone industry. The company's diverse range of drone products, including small and medium-sized unmanned aerial vehicles, positions it well to benefit from the increased demand and production in the drone sector [1].

The memo aims to equip every squad with cheap and expendable drones by the end of 2026, which presents significant growth opportunities for these companies. The Pentagon's push to reduce bureaucratic barriers and speed up the timeline for drone innovation is expected to continue, further bolstering the prospects for these and other drone manufacturers.

References:
[1] https://defensescoop.com/2025/07/16/pentagon-seeks-to-surge-its-multi-domain-drone-arsenal/
[2] https://www.investing.com/analysis/3-drone-stocks-take-flight-on-hegesths-bold-memo-who-and-why-200663880