AeroVironment, Palantir, and Kratos: Top Drone Stocks to Monitor Amid U.S. Military’s Unmanned Shift

TLDR

• Drones are replacing traditional military roles like snipers and spotters, driven by lessons from the Ukraine war
• AeroVironment reported record revenue of $820.6 million for fiscal 2025, up 14.45% year-over-year, backed by Pentagon contracts
• Palantir posted $1.63 billion in Q1 2026 revenue, with its AI software increasingly central to coordinating drone operations
• Kratos Defense hit $1.347 billion in 2025 revenue and is guiding for up to $1.675 billion in 2026, with its XQ-58A Valkyrie drone entering Marine Corps production
• The West’s near-total reliance on Chinese-made drone components is a growing vulnerability, with new U.S. defense procurement rules taking effect January 1, 2027

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(SeaPRwire) –   Modern warfare is evolving rapidly, with several U.S. defense firms leading the transformation. The conflict in Ukraine has demonstrated how low-cost drones can perform many functions previously carried out by human soldiers—a shift that has attracted significant investor interest.

Today, drones conduct reconnaissance, target acquisition, and precision strikes far more efficiently and at lower cost than conventional methods. They operate faster, cover greater distances, and reduce risks to military personnel. In 2024 alone, Ukraine manufactured approximately 1.2 million drones to sustain its defensive efforts against Russian advances.

This trend is not fleeting; it reflects a fundamental change in military strategy. Defense planners worldwide are now developing operational doctrines centered around large-scale drone deployment, directly boosting revenues for key suppliers.

AeroVironment stands as a primary beneficiary. The company produces the Switchblade loitering munition, widely deployed across Ukrainian battlefields, along with the Puma and Raven tactical drones used extensively by U.S. and allied forces for intelligence gathering.

AeroVironment, Inc., AVAV

In fiscal 2025, the firm achieved record revenue of $820.6 million, marking a 14.45% increase compared to the previous year. The U.S. Department of Defense has awarded hundreds of millions in contracts for Switchblade systems, including a $64.6 million contract modification in 2023. Furthermore, the Pentagon’s Replicator Initiative—designed to deploy thousands of autonomous platforms—is expected to significantly boost future demand.

The Software Layer: Palantir’s Growing Role

Scaling drone operations effectively requires more than hardware; it demands sophisticated data management capabilities. Palantir has emerged as a critical player in this domain.

Its Gotham platform integrates real-time battlefield data and supports mission planning for U.S. and coalition forces. Its artificial intelligence platform, AIP, now plays a central role in managing autonomous systems, including coordinated drone swarms that function with minimal human intervention.

For Q1 2026, Palantir recorded $1.63 billion in revenue, with its domestic business more than doubling over the past year. Government contracts continue to represent a major portion of its backlog, underscoring sustained demand from defense and intelligence agencies.

Kratos Defense has adopted a distinct strategy focused on cost-effective, expendable systems. Its XQ-58A Valkyrie is a jet-powered autonomous drone designed to fly alongside manned aircraft, undertaking high-risk missions at a fraction of the expense of traditional fighter jets.

The U.S. Marine Corps has designated the Valkyrie as a program of record—the first Collaborative Combat Aircraft to move into full production. Airbus has also partnered with Kratos to develop a European variant for the German Luftwaffe, with initial deployments anticipated by 2029.

In 2025, Kratos reported $1.347 billion in total revenue, reflecting organic growth of about 17%. The company forecasts revenue between $1.595 and $1.675 billion in 2026, with CEO Eric DeMarco citing a long-term target of $2.5 to $3 billion by 2028.

The Supply Chain Problem No One Is Talking About

Despite rapid expansion in drone manufacturing, a critical structural weakness persists within the industry. The overwhelming majority of drone motors, electronic speed controllers, and related components—used both in military and commercial applications—are produced in China.

This dependency extends even to U.S.-assembled drones; their core propulsion units often originate from Chinese suppliers.

Unusual Machines is addressing this gap by providing NDAA-compliant drone components manufactured entirely in the United States, free of any Chinese-sourced parts. The company secured a $12.8 million Pentagon contract in October 2025 to deliver roughly 160,000 components to the U.S. Army. In March 2026, it raised $150 million through a public offering to expand production capacity.

Total revenue for full-year 2025 reached $11.2 million—double the prior year—but still modest in scale. The firm aims to achieve an annualized run rate of $30 million by the end of 2026.

REalloys is tackling another vulnerable link: rare earth supply chains. The company is establishing a fully integrated rare earth processing and magnet fabrication facility outside China, with sites in Saskatchewan and a metallization plant in Euclid, Ohio. By early 2027, it expects to produce around 525 tonnes annually of NdPr metal, a vital material for high-performance magnets used in drone motors.

New U.S. defense procurement regulations effective January 1, 2027 will prohibit the use of Chinese-origin rare earth materials in essential defense systems, setting a firm deadline for contractors to secure compliant domestic sources.