BusinessJun 24, 2026
The Race for Drone Dominance Is Creating New Defense Winners
Rhea Lobo
War has always been expensive — now the cheapest weapon wins. Conflicts in Ukraine and Iran have exposed the limits of traditional military hardware, with low-cost drones shaping outcomes on the battlefield. The Pentagon is responding with a budget overhaul that is creating new opportunities across the defense sector.
Asymmetric warfare: Iran’s Shahed drones shut the Strait of Hormuz, forcing the US to burn through hundreds of millions of dollars’ worth of interceptor missiles in just days. The Pentagon’s answer is the DAWG budget explosion, with the Defense Autonomous Warfare Group set to jump from $225M in fiscal 2026 to $55B in fiscal 2027. William Blair estimates the US market for lower-cost drones alone could approach $100B annually.
Analysts say the clearest test for a drone company is battlefield use. Capital Alpha Partners’ Byron Callan calls deployment in Ukraine the industry’s “Good Housekeeping seal of approval,” and AeroVironment is one of the few public companies that has earned it. The company expects ~$2B in 2026 sales and makes Switchblade loitering munitions, Raven reconnaissance drones, and counter-drone laser systems. Others are lining up behind the same trend.
The picks-and-shovels: Jefferies analyst Sheila Kahyaoglu prefers a picks-and-shovels approach, highlighting Kratos Defense, which is developing the XQ-58A Valkyrie combat drone, and L3Harris Technologies, which plans to spin off its missile business. Both offer exposure to the drone buildout without relying on a single platform or program. As drone warfare expands, companies that can scale production quickly, keep costs low, and reduce reliance on China stand to benefit the most.
