Trump's $1.5T Defense Ask Fuels Drone Trade

U.S. President Donald Trump said on Wednesday, Jan. 7, 2026, that he will ask Congress to fund a $1.5 trillion military budget for fiscal year 2027 (starting Oct. 1, 2026). That compares with the $901 billion military budget approved for FY2026, implying an increase of roughly $599 billion (about +66%). Trump argued the jump could be financed by tariff-related revenue, though budget experts and fiscal watchdogs have raised doubts about the math and the legislative path.

For markets, the headline matters less as a number than as a signal: a larger defense top line tends to revive interest in categories where spending can scale quickly—uncrewed systems (UAS), loitering munitions, ISR drones, and counter-UAS. Drone adoption has accelerated across modern conflict and homeland-security use cases, spanning reconnaissance, electronic warfare, precision strike, and “manned-unmanned teaming.”

Morgan Stanley's long-range scenario work adds fuel to the narrative: it projects the global drone fleet could rise to 130 million by 2030, 900 million by 2040, and over 2 billion by 2050, driven by AI iteration, policy support, and expanding applications.

Defense-drone watchlist (examples)

$AeroVironment(AVAV)$  :Builds small/mid-size military drones (UAS) and counter-drone (C-UAS) systems.

Advantages

– Real contract momentum: Won an $874M Foreign Military Sales IDIQ award covering multiple UAS + C-UAS systems (IDIQ = framework where orders can be placed over time).

– “UAS + C-UAS” portfolio fit: When budgets shift toward drones and protection against drones, AVAV can capture both sides of the spend.

Key risks

– Execution/margin swings (integration, ramp, program timing).

$Northrop Grumman(NOC)$  :Large defense prime; increasingly visible in next-gen autonomous aircraft / “loyal wingman” concepts.

Advantages

– Program validation: The U.S. Air Force designated Northrop's Project Talon prototype as YFQ-48A under the Collaborative Combat Aircraft (CCA) umbrella—signals seriousness and a clearer path toward follow-on work.

– System integration strength: If the future is “drones + sensors + comms + command software” as a full system, primes with certification and integration muscle tend to win bigger, longer programs.

Key risks

– Drones are only one part of NOC; upside may be diluted by the broader business mix.

$Kratos Defense & Security Solutions(KTOS)$  :Known for unmanned systems and defense tech; positioned for scalable, lower-cost drone programs.

Advantages

– Guidance moving up: Raised full-year 2025 revenue guidance to $1.32–$1.33B in its Q3 2025 update.

– Unmanned systems growth showing up: Reported strong organic growth, with unmanned systems segment highlighted as a key driver.

– Market framing is “mass adoption”: Barron's noted long-term growth expectations (with 2026/2027 growth targets cited) even as the stock can swing on quarterly cadence.

Key risks

– Very sensitive to order timing and guidance; expect volatility.

$Red Cat Holdings Inc.(RCAT)$  :Defense-focused drone company (via Teal) tied to U.S. Army SRR (Short Range Reconnaissance) efforts.

Advantages

– Contract expansion: Company disclosed SRR Tranche 2 / LRIP contract expanded to ~$35M.

– Revenue inflection (from a small base): Reported Q3 revenue $9.6M, up 646% YoY (again, small base—but direction matters).

– Compliance tailwind: Pursuing/strengthening Blue UAS cybersecurity posture via a third-party assessment—important for government procurement credibility.

Key risks

– Production ramp + customer concentration + financing/dilution risk typical of small caps.

$Ondas Holdings Inc.(ONDS)$  :Counter-UAS systems (Iron Drone Raider) aimed at protecting critical infrastructure (e.g., airports).

Advantages

– Repeat order signal: Announced an additional $8.2M counter-UAS order—described as the second major order in ~two weeks for European airport security deployments.

– Non-battlefield demand: Airports/critical sites can become a large, recurring-use market for counter-drone systems.

Key risks

– Small-cap order lumpiness and cash-flow pressure if follow-on bookings slow.

$AIRO Group Holdings(AIRO)$  :Drone and aerospace-defense company; pushing U.S. manufacturing scale-up.

Advantages

– U.S. production milestone: Announced completion of the first U.S.-produced RQ-35 ISR drones at its Phoenix facility (a tangible step from story → output).

– Partnership/JV angle: Executed a joint venture with Nord-Drone to deliver battlefield-tested drone technologies across U.S./NATO/Ukraine defense forces (could accelerate product iteration and demand pull).

Key risks

– Capital needs / dilution risk is real for fast-scaling manufacturers (AIRO has previously raised capital to fund growth).

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