U.S. government is reportedly set to invest in drone industry. These are Wall Street’s favorite plays
With the Trump administration reportedly discussing potential funding deals with drone companies, Wall Street analysts think names like Unusual Machines and Motorola Solutions are most likely to benefit. Drone stocks surged on Thursday after The Wall Street Journal reported , citing people familiar with the matter, that the Pentagon has held talks with a group of drone companies. The Journal reported that the deals could involve stakes that would award the federal government some form of ownership. In a Thursday note, Oppenheimer analyst Timothy Horan doubled his drone total addressable market for 2027 to $140 billion from $70 billion. Advancements in artificial intelligence are also setting up a new leg of growth for the drone market. In March, Barclays analyst Zornitsa Todorova called drones a physical embodiment of AI. Wall Street’s favorite drone plays In another note from March, analysts at Canaccord Genuity wrote the Iran war’s impact will likely favor makers of both tactical drones and counter-unmanned aerial systems. Specifically, AeroVironment would be a particular beneficiary, the firm said. Canaccord Genuity analyst Austin Moeller also wrote that AeroVironment and Kratos are the best-positioned stocks in the market for one-way attack and attritable drones, or ones that are reusable but cheap enough they can be lost in combat. Roth Capital Partners also sees Unusual Machines gaining as the U.S. continues investing in its domestic drone push. Earlier this month, the investment firm initiated coverage of the drone components maker at a buy rating. “The U.S. drone components market benefits from strong regulatory support forcing the establishment of a domestic supply chain,” Roth analyst Craig Irwin wrote. “As a diversified supplier and low-cost producer, UMAC is well positioned.” Shares of Unusual Machines surged more than 60% on Thursday after the Journal reported that it is one of the companies in talks with the Pentagon. UMAC YTD mountain Unusual Machines in 2026 In a Wednesday note, Barclays analyst Tim Long reiterated his overweight ratings on both Motorola Solutions and Axon Enterprise , citing both companies’ drone businesses as a catalyst. “Both companies’ drone plays, though minimal to revenue, could continue to drive outsized growth through the year,” he wrote. “We have gotten questions from investors asking for ‘drone plays,’ but have not seen any higher multiple assigned to these businesses like has happened with AI infrastructure companies,” Long added. “We believe as we head through 2H and into 2027, more focus (and valuation) will be placed on drone businesses, particularly those that are not exposed to commodity hardware.” Long’s $509 price target on Motorola offers upside of about 25%, while his $523 forecast on Axon implies that shares could rise roughly 34% from their Wednesday closes. MSI YTD mountain Motorola in 2026 Oppenheimer’s Horan sees Ondas as another potential beneficiary as the Iran war accelerates demand and innovation in the drone industry. In a Thursday note, the analyst called the defense solutions provider a “major winner.” “Autonomous attack and counter-drones in dozens of form factors have become the defacto/dominant military tool. They will also be the defacto choice for terrorists/criminals,” he wrote. “ONDS’ Sentrycs is a leader with few competitors and is seeing very strong demand.” The analyst also sees promise in Palantir “We think that ONDS and PLTR, who recently entered a partnership, will also develop their software offering, and compete in this space in the near future,” he said. The two companies have paired up and Ondas will use Palantir’s capabilities to support its autonomous drone platforms . Other favored drone names on the Street include Aevex , which went public in April. Goldman Sachs initiated coverage of the stock at a buy rating earlier this month. The firm’s $34 price target is approximately 10% higher than where shares closed on Wednesday. AVEX YTD mountain AEVEX in 2026 “Aevex is an opportunity to invest in a defense tech company that sells into a rapidly growing end-market, and that has strong profit margins and cash flow on top of high rates of relatively early stage growth,” wrote analyst Noah Poponak. Similarly, in a note from last week Baird analyst Peter Arment called Aevex a “best-in-class drone pure play” that investors should “stay long” on following the company’s strong first-quarter results that beat consensus across metrics. Arment similarly has an outperform rating assigned to the stock. Amit Dayal, an analyst at H.C. Wainwright, also offered Red Cat as a beneficiary. The analyst initiated coverage of the name at a buy rating on Wednesday. “Stock has appreciated meaningfully with several catalysts ahead,” Dayal wrote. “We believe a super cycle for unmanned systems is now beginning where defense customers will demand a unified all-domain platform spanning air, ground, maritime, and software intelligence, and Red Cat is uniquely positioned to deliver.”
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