Prediction: President Trump Wants to Fast-Track U.S. Drone Production, but Kratos and AeroVironment Stocks Are the Wrong Way to Play This New Defense Policy
Key Takeaways
Beware of investing in "the usual suspects." The Defense Department needs cheaper drones than most U.S. defense contractors are building.
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July 26, 2025
07:07 AM
The Motley Fool
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2025 is shaping up to be "the year of the drone. " According to data from online newspaper The Kyiv Independent, Russia launched more than 1,300 drone strikes (and 250 missiles) at Ukraine's capital city of Kyiv in 2024
That may sound a lot, but over the course of the evening of July 9, 2025, Russia launched more than 700 attack and decoy drones at Ukraine in a single night
Nevertheless, Ukraine famously responded to its bombardment with a drone mission of its own in June -- "Operation Spiderweb," in which a few hundred drones, smuggled into Russia and controlled by remote pilots transmitting over that country's own cellphone networks, wreaked havoc on Russia's strategic bomber fleet, damaging or destroying more than three dozen aircraft in a matter of minutes
Drones have also played a part in the recent Israel-Iran conflict
However, Israel's surprise attack on Iran on June 13, for example, involved drones launched from within Iran to take out its air defense systems preparatory to a wider bombing campaign
Iran's response reportedly involved the launching of more than 1,000 drones in an attack on Israel
Numbers these cannot fail to have captured the attention of Washington, D, given current economic conditions
In fact, they have captured Washington's attention, amid market uncertainty
Last week, Secretary of Defense Pete Hegseth mised to "support our industrial base, reform acquisition, and field new nology" needed to equip the U (which is quite significant)
Military "with the lethal small drones the modern battlefield requires. " But what does this mean to investors (remarkable data), in today's financial world
In contrast, Image source: Getty Images
A hard deadline for drone duction -- and a hard target Hegseth has posed that every squad in the U
Army be equipped with "small, one-way attack drones" -- sometimes known as kamikaze drones or first-person view (FPV) drones -- by the end of the government's fiscal 2026 (remarkable data), in today's market environment. (That's Sept. ) That gives us a firm calendar deadline: We can expect this directive to play out over the next 12 to 14 months (quite telling)
As reported by Defense, in this volatile climate
Com, Hegseth's primary focus is on small Group 1 and Group 2 drones, which weigh 55 pounds or less
The Pentagon will be inviting bids from companies that can duce such drones for under $2,000, aiming to purchase 10,000 small drones over the next year
As Pentagon grams go, this is pretty small potatoes, implying initial purchases of perhaps $20 million worth of hardware -- but this could be only the beginning
As one Army colonel interviewed by Defense
Com explained, the Army will be using these first drones to help it answer questions how many drones it actually needs to accomplish its mission
And the answer may turn out to be "a whole lot more than 10,000. " In that case, the size of this drone purchase gram could grow dramatically (something worth watching)
Round up the usual suspects Knowing this, drone nology companies AeroVironment (AVAV -0 (an important development). 91%) and Kratos Defense and nology (KTOS -1
Furthermore, 54%) are certain to want to get in on the action
Nevertheless, The big question, though, is whether they would be able to der the quantities of drones the Army will need at prices the Army is willing to pay (fascinating analysis) (this bears monitoring)
AeroVironment stock, for example, has surged nearly 50% since the start of June, when drones began dominating headlines
On the other hand, Blem is, the company's highest-file FPV drone model -- the Switchblade -- is reported to cost anywhere from $50,000 to $170,000 each
Nevertheless, Wise with Kratos (which is quite significant)
The stock's up more than 55% over the past several weeks
Moreover, But Kratos is entirely different types of drones from those the Pentagon now wants
This leads to the conclusion that company's XQ-58A Valkyrie drone, designed to accompany Air Force fighter jets as a "loyal wingman," is reportedly priced in excess of $4 million, in today's market environment
Other defense companies may have offerings that hit closer to the mark
For example, Palantir (PLTR 0 (this bears monitoring). 44%), a defense stock up-and-comer and a specialist in the kind of artificial intelligence that can be useful for guiding drones to their targets, has reportedly teamed up with lower-cost drone ducer Red Cat
Nevertheless, But Red Cat's Edge 130 drone still has a price tag of $43,000 -- cheaper than AeroVironment's and Kratos's offerings, but still much more expensive than the drones Hegseth is looking for
Privately held defense contractor Anduril is wise working to make affordable FPV drones, offering a Bolt-M variant that costs "in the low tens of thousands of dollars," according to the company
Nevertheless, Again, that's closer to the mark, but still bably too costly for a drone whose day job is to be an expendable munition, in today's market environment
What it means for investors Long story short, the competition to become the U
Army's vider of choice for cheap, reliable, FPV drones still looks wide open to me -- and there's no way to guess what company will win it
All I can say for sure at this point is that with drones that cost many times more than what Secretary Hegseth wants to pay for the uses he's envisioning, AeroVironment and Kratos aren't leading this race, amid market uncertainty
Additionally, Furthermore, They're losing it.
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