Drone Warfare and Defense Demand: Why Ukrainian Firms and Western Arms Makers Are Poised for Growth

The intensifying drone warfare in Ukraine has created a seismic shift in global defense spending, with U.S. military aid and European reconstruction pledges fueling a golden era for defense contractors. As Russia's drone swarms terrorize cities and infrastructure, the scramble to counter these threats has positioned firms like Raytheon Technologies (RTX) and Ukrainian startups like TenCore at the forefront of a lucrative arms race. Meanwhile, the July 2025 Rome Conference's $524 billion reconstruction pledge has opened a parallel opportunity in infrastructure resilience—particularly in cybersecurity and energy sectors. Here's why investors should pay attention.

The Drone Threat: A Catalyst for Defense Spending

Russia's drone warfare has evolved into a full-scale asymmetric campaign. In June 2025 alone, Moscow launched a record 728 drones in a single attack, overwhelming Ukrainian defenses. This has created a $34.3 billion U.S. military aid pipeline to Ukraine, with Raytheon's Patriot missile systems at the heart of the response. The U.S. has resumed deliveries of 10 additional Patriot interceptors in July .

The Pentagon's $68 billion backlog for Patriot interceptors and PAC-3 MSE missiles underscores the sustained demand. Raytheon's production has surged by 116% to 48.6 units per month, yet global Patriot missile output remains capped at ~500 annually. This bottleneck creates long-term revenue stability for RTX, as Ukraine's need outpaces supply.

Ukrainian Defense Contractors: The Next Wave of Innovation

While Western firms like Raytheon dominate the hardware supply chain, Ukrainian startups are emerging as agile disruptors. TenCore, a Kyiv-based firm founded in 2024, has grown from 5 to 175 employees and projects $80 million in 2025 revenue. Its focus on rapid prototyping and battlefield-ready systems—like AI-driven interceptors—has made it indispensable to Ukraine's defense.

Key players:
- TenCore: Developing lightweight interceptors and AI-enabled drone detection systems.
- Elbit Systems (ESLT): Partnering with Ukraine to scale domestic drone production (4 million units annually).
- General Chereshnia: A state-owned firm that saw sales of drones and artillery systems increase tenfold under Defense Procurement Agency contracts.

The G7's $4 billion funding boost (doubling previous commitments) will accelerate mass production of advanced interceptors. Ukraine's goal to produce 40% of its weapons locally by 2025 signals a structural shift toward self-reliance, creating opportunities for firms willing to co-develop systems with Kyiv.

Infrastructure Reconstruction: Beyond the Battlefield

The Rome Conference's $524 billion reconstruction roadmap prioritizes sectors critical to post-war resilience:
1. Energy and Utilities: Hardening grids against cyberattacks and drone strikes.
2. Transportation: Rebuilding railways and ports to withstand sabotage.
3. Cybersecurity: Protecting infrastructure from Russian hacking (e.g., CrowdStrike, Fortinet).

The EU's $150 billion SAFE initiative aims to boost European defense manufacturing, creating cross-border partnerships. For instance, Lockheed Martin (LMT) is already supplying advanced radar systems to NATO allies, while Boeing (BA) could dominate aerospace logistics for rebuilding.

Risks and Opportunities: Sanctions, Geopolitics, and Cybersecurity

• Sanction Risks for Russia-linked Assets: Avoid exposure to Russian energy firms (e.g., Gazprom) and banks, as Western sanctions tighten.
• Cybersecurity and Energy Resilience: The $840 billion European defense investment includes cybersecurity infrastructure. Firms like Palo Alto Networks and Veoneer (autonomous vehicle tech) are critical to securing supply chains.
• Geopolitical Volatility: While U.S. military aid is a tailwind, pauses in deliveries (e.g., Patriot delays in 2025) could disrupt timelines. Monitor the U.S. Congress's defense budget approvals closely.

Investment Takeaways

1. Defense Contractors:
2. Buy RTX: Its Patriot backlog and 8% projected growth in U.S. defense budgets make it a stable bet.

3. Look for Ukrainian Startups: TenCore's $80M revenue is a fraction of its potential—watch for IPOs or strategic acquisitions.

4. Infrastructure Plays:

5. Cybersecurity Stocks: CrowdStrike (CRWD) and Fortinet (FTNT) are essential for post-war rebuilding.

6. Hardened Infrastructure Funds: Consider ETFs like SPDR S&P Infrastructure (XINF) for exposure to energy and transport projects.

7. Avoid:

8. Russian equities and energy stocks due to sanctions.
9. Overleveraged defense firms without Patriot contracts (e.g., those reliant on declining artillery sales).

Conclusion: A New Era of Defense and Resilience

The drone warfare in Ukraine has redefined modern conflict, transforming defense spending into a decade-long growth story. Investors ignoring this shift risk missing out on firms like RTX and TenCore, which are shaping the future of air defense. Meanwhile, the Rome Conference's reconstruction pledges offer a second act in infrastructure resilience—particularly in cybersecurity and energy—where Western firms can capitalize on Ukraine's need to rebuild smarter, not just stronger.

Stay long on defense, short on complacency.

Data as of July 2025. Past performance does not guarantee future results.