The Rundown - Deep Dive: The Drone Stocks to Watch After the Pentagon’s New Order

Episode Date: July 12, 2025

The Pentagon just issued an emergency order to fast-track American drone production and it sent stocks like Red Cat, Unusual Machines, and AeroVironment soaring. In this episode, we break down what the new directive actually does, why drones have become the most important weapon on the battlefield, and which companies are poised to benefit. We also look at how far the U.S. has fallen behind in global drone dominance, and whether the Pentagon might take a direct stake in one of these firms.Check out past deep dives:The Reunion of Silicon Valley and the U.S. MilitaryWhat Palantir Actually Does (And Why It Matters)This video is for informational purposes only and reflects the views of the host and guest, not Public Holdings or its subsidiaries. Mentions of assets are not recommendations. Investing involves risk, including loss. Past performance does not guarantee future results. For full disclosures, visit ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Public.com/disclosures⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠.

Welcome back to the rundown for another weekend deep dive. Today, we are taking a look at why the Pentagon is going all in on drones. The Defense Department just announced new rules for drones, lifting previous restrictions and red tape in hopes of fast-tracking the production of American-made military drones. So in today's episode, we're breaking down why drones have become a crucial part of modern warfare, what rules the Pentagon is changing, which companies could benefit the most from these changes, and whether the Pentagon could end up directly investing in some of these companies. We got a great one for you today.

Let's dive in. In a very short amount of time, drones have gone from being a toy used by hobbyists and realtors to being a weapon on the modern battlefield. Conflicts in the Middle East and Ukraine over the past couple of years have shown that the future of warfare looks a lot less like Top Gun and more like a violent video game. U.S. officials estimate that drones are responsible for 70% of Russian battlefield casualties in Ukraine. In 2024 alone, Ukraine said it produced 1.5 million drones, and Russia is expected to ramp up even further, manufacturing 2 million first-person-viewed drones in 2025. Meanwhile, in the Middle

East, drones have been used by both state militaries and rebel groups to hit oil facilities, bases, and shipping lanes. Drones have now become the go-to weapon for asymmetric warfare. They're cheap, they're precise, and they're increasingly hard to defend against. So all of this over the last few years has been a massive wake-up call for the Pentagon. Now, to be clear, the U.S. military is still the leader when it comes to high-end drones, like the Reaper. But drones like that are massive, and they cost millions of dollars. When it comes to the cheap, tactical mass-produced drones, the kind that swarm enemy lines and overwhelm air defenses, China is winning in that department. China dominates the global drone supply chain, especially in components that.

power FPV drones. By early 2025, 80% of the electronics in Russian drones were sourced from China, according to Ukrainian intelligence. The biggest drone company in the world is DGI, which is based out of China. They control about 70% of the global drone market. And they make some incredible consumer drones. I used to own one. But now these DGI drones are being used on the battlefield. DGI's Mavic drones, which are built for civilian use, are now being used in combat by both sides in the Russia-Ukraine war. But China ultimately controls who gets access. Ukraine is now saying they've been cut off from DGI drones

while Russia still enjoys unrestricted supply. And when you consider the fact that there's no drone company in the U.S. that has the commercial or military success to match that of DGI, that's a red flag for the Pentagon. So the Defense Department is now treating drone manufacturing in the U.S. as a national security emergency. And they're making some moves to ramp things up. The Secretary of Defense, Pete Heggseth, made a big splash this week in a video posted to X.com

where he hyped up the Defense Department's plans to unleash American drone dominance. This video was shot on the front lawn of the Pentagon with drones buzzing around and Hexeth walked out to a Metallica song. So not being real subtle, I would say. Now, in the video, Pete Hexseth said the Defense Department is tearing up red tape and rewriting the playbook to fast-track procurement and deployment of U.S. made drones. Some of the rule changes include giving field commanders like colonels and captains the green light to independently procure and test drones, including 3D printed models and off-the-shelf units. These commanders don't have to wait for top-down Pentagon approval anymore.

The Pentagon is also reclassifying small drones from aircrafts to munition, essentially treating them like bullets and not like jets. So this change removes them from old school tracking systems and should speed up acquisitions dramatically. The Pentagon is also ramping up track. training and integration of drones. Every branch must now integrate drone warfare into combat simulations, including force-on-force drone war. And to make all this happen, the Pentagon is putting money behind it. The DoD plans to use advanced purchase commitments, direct loans, and capital incentives to

jumpstart the domestic drone industry. And all of that is expected to be a big boost to domestic drone companies in the US, and investors are already starting to jump in. All right, so let's talk about some of the companies that are best positioned to ride this drone boom because investor hype is already starting to ramp up. Now, one of the company's making a lot of buzz is Red Cat, ticker symbol R-C-A-T. Now, Red Cat has been on investors' radar for a while now. The company already has a relationship with the U.S. military. Their Tier 2 drone has already been approved for military use, and they just secured a five-year

contract with the U.S. Army for their new Black Widow drone. Red Cat also turned some heads when they announced a partnership with Palantir earlier this year. The Palantir is the AI defense company that has become a household name at this point. And this partnership brings Palantir's software directly on board Red Cat's drones. Palantir's AI allows Red Cat's drones to navigate without GPS or radio signal. Red Cat is also using Palantir's technology to improve their manufacturing capabilities. Now, as for their business, Red Cat's revenues jumped about 300% in 2024, reaching nearly $18 million last year. And for 2025, Redcat expects revenues to be between 80 to 120 million, which would be like a 500% increase from last year.

And by the way, this revenue projection was announced before the HegSeth video this week. So yeah, Red Cat's stock got a nice 26% bump following the Hexeth video, but shares are still down around 30% this year despite this jump. Now next up, we have a very ambitious company called Unusual Machines who are trying to become the DJI of the U.S. Now, they're more of a newer player in this space, but they've been making moves recently, like building out their manufacturing in Florida and acquiring popular FPV hardware brands

like Fat Shark and Rotor Riot. The company is still a microcap with revenues of just $2 million in Q1 and a market cap of around $300 million. But the company did land a big fish in November that could help them out politically. See, after the election back in November, Donald Trump Jr. joined the company's advisory board

which sent the stock up over 100% at the time. Don Jr. said he was excited to help the company bring drone manufacturing to the US, which is obviously a big goal for the Pentagon. So with these new rules from the Pentagon, unusual machines could end up winning some military contracts. And that's why their stock, ticker symbol UMAC, closed up 39% on Friday after the Pete Hexeth video. Now next that we have a bigger, more established company, Aero Virenment. They trade under ticker symbol AVAV. And these guys are one of the most established players in the space. AeroVironment makes a drone called the switchblade, which has been used extensively in Ukraine.

The company also has deep connections in Washington, and they're already a prime supplier to the Pentagon. The company did $800 million in revenue last year, and investors are optimistic about the future. Their stock jumped 11% after the Pete Hexeth video, and it's gone up 65% this year, giving them a market cap of around $13 billion. And finally, we have Kratos. They trade under ticker symbol K-T-O-S. And this company builds a jet-sized drones that can fly alongside fighter planes as like a robotic wingman. Now, while the Pentagon is currently focused on small tactical drones, if that vision scales up to include more advanced systems, Kratos could be a big long-term winner. Currently, their drone-related business hits $63 million in Q1 of 2025, which is up 6% year-over-year,

and they specifically called out jet drones and propulsion systems as a key growth area. The market is buying the hype right now. Kratos shares jumped 11% following the Pete Hegseth announcement, and their stock is already up nearly 100% this year. So those are just some of the companies at the center of the emerging U.S. drone industry. And there are some people out there speculating if the Pentagon might just invest in these companies themselves. Now look, I'm just speculating here, but I wouldn't be shocked if the Pentagon eventually

takes a more aggressive step by investing directly in some of these drone companies and injecting them with capital. I mean, the U.S. government is already cracking down on technology exports that pose national security risks, like AI chips. At the same time, there's a massive push to reshore critical supply chains, especially in defense and emerging tech. And there's also a clear precedent for what could come next. Just this week, the Department of Defense became the largest shareholder in MP Materials,

which is a company that owns the only operational rare earth mine in the U.S. The Pentagon bought $400 million in shares to help secure a domestic domestic. supply chain of rare earth metals that China has historically dominated. And with China dominating the drone supply chain, not just in manufacturing, but in components and electronics, the Pentagon could apply the same playbook to American drone companies. They take inequity stay, do some long-term contracts, and inject the companies with capital to help them scale faster. And we've seen this playbook going back decades. Like 20 years ago, the CIA's venture arm in QTEL quietly funded a little data startup called Palantir. That investment has paid off not just

financially, but strategically. Palantir is one of the most important and valuable defense tech companies in the world. So could Red Code or unusual machines be the next Palantir? I mean, it's not out of the question, especially now that drones are becoming so essential to the battlefield as missiles and fighter jets. By the way, speaking of Palantir, we actually did a deep dive episode breaking down what Palantir does, and we also did another episode talking about the reunion of big tech companies and the military. We'll link both of them in the description if you want to check that out. So to wrap things up, I mean, it's pretty clear that drones have become a top priority now for the U.S. military, and the Pentagon knows they're lagging behind China. These new rules

by the Defense Department are designed to close the gap with China and create a homegrown drone industry that can scale quickly. For investors, that's a flashing green light. Defense tech is heating up, and we may be witnessing the early innings of a drone gold rush. Investors are already placing their bets, hoping that one of these small players emerges as the next Lockheed Martin of the autonomous age. Well, all right, guys, that's it for today's weekend, deep dive. If you guys enjoyed today's episode, please hit us with a five-star rating on Apple or Spotify. And remember, you guys can actually watch this podcast now on Spotify or YouTube. If you are listening on those platforms, don't forget to leave us a comment and let us know what topics you want us to

cover in future episodes. Thank you guys again for listening and watching. Shout out to Mike and Connor for all the help behind the scenes. And we'll see you guys back here. here on Monday.