The Pentagon’s 244X Play

Buried in the Pentagon’s latest budget blueprint is an eye-popping number – one that Congress is almost sure to agree to between now and year-end.

That’s because you’re going to be hearing a lot about drone warfare in the days, weeks and months to come – more than you have already.

Investable? Yes – as colleague Davis Wilson has discovered this summer.

Really, it’s shaping up to be one of the major themes we’ll be following for the rest of 2026. 

55 Billion Reasons to "Go Drone"

The Pentagon has a math problem.

And it's a big one.

Imagine spending $2 million to shoot down a drone that costs $20,000.

Do it once and nobody notices.

Do it hundreds of times and your military strategy starts to break down.

That's the lesson the United States has learned from the wars in Iran and Ukraine.

Cheap drones are increasingly able to overwhelm expensive defenses.

Now the Pentagon is responding in a dramatic way.

The Department of War just announced it’s seeking $55 billion for drone and autonomous warfare programs in its fiscal 2027 budget.

For perspective, that's up from $225 million just one year earlier.

That’s a 244x increase in one year.

The message couldn't be clearer: The future of warfare is autonomous.

And as investors… it’s time we take notice.

Here’s Where The Money Is Going

The Pentagon isn't simply buying more drones.

It's rebuilding an entire ecosystem.

Think about what it takes to field thousands of autonomous systems.

First, you need the drones themselves.

Then you need the software that allows them to communicate, coordinate, and operate autonomously.

And finally, you need a secure domestic supply chain capable of producing all of those systems at scale.

In other words, this $55 billion spending surge won't create just one winner.

It will create winners across the entire autonomous warfare stack.

Here are the three layers I'm watching closely.

Layer #1: The Drone Builders

The most obvious winners are the companies actually manufacturing the drones.

As warfare shifts from a handful of expensive platforms to thousands of expendable autonomous systems, demand for drone production could explode.

The Pentagon isn't looking to buy a few dozen systems.

It's looking to field them at scale.

Here are the companies I'm watching:

• AeroVironment (AVAV) – This was once a $400 stock that now trades below $170. The company is one of the most established names in military drones. If the Pentagon is serious about fielding autonomous systems at scale, AeroVironment is likely to be one of the first companies on speed dial.

• Red Cat Holdings (RCAT) – This is a $1.7 billion company most investors have never heard of. Red Cat focuses on tactical drones used by frontline military personnel for reconnaissance and battlefield awareness.

• Kratos Defense (KTOS) – This is another stock well off its highs. Shares traded around $134 in January and sit near $53 as I type. What attracts me to Kratos is that its entire business is aligned with where military spending is headed: lower-cost, autonomous, and scalable.

One thing investors should remember: drones are increasingly becoming consumables.

Unlike fighter jets that can remain in service for decades, drones get used, destroyed, and replaced.

That creates a recurring demand cycle that looks more like ammunition than traditional defense procurement.

Layer #2: The Brains Behind The Drones

Building thousands of drones is one thing.

Getting them to operate together is another.

The Pentagon's vision isn't simply thousands of independent drones flying around the battlefield.

It's aiming to create swarms of these drones.

That requires software capable of coordinating hundreds of systems simultaneously, sharing information, assigning targets, and adapting in real time.

Here are the companies I'm watching:

• Ondas (ONDS) – This is a $4.7 billion company operating at the intersection of drones and artificial intelligence. The company develops autonomous drone systems and the software needed to coordinate them.

• Palantir (PLTR) – I’ve been critical of Palantir in the past for valuation reasons. But undoubtedly the company is already deeply embedded within the defense ecosystem. And because autonomous warfare generates massive amounts of battlefield data, they’ll likely be the company to organize it.

In many ways, this may become the most valuable layer of the entire autonomous warfare stack.

Anyone can build a drone.

Far fewer companies can build the software required to coordinate thousands of them.

Layer #3: The Picks-And-Shovels Suppliers

The Pentagon has made it clear that it wants to reduce its dependence on foreign drone components – particularly those sourced from China.

That's easier said than done.

Building thousands of drones requires motors, flight controllers, cameras, radios, and countless other components.

If those parts can't be sourced domestically, the Pentagon's ambitious plans quickly run into supply chain bottlenecks.

That's where a little-known $1.2 billion company called Unusual Machines (UMAC) comes in.

• Unusual Machines (UMAC) – One of the few public companies focused on supplying NDAA-compliant drone components sourced outside of China. As the Pentagon pushes to build a secure domestic drone ecosystem, companies like UMAC could become increasingly important.

Most investors focus on the finished drone.

Instead, let’s focus on what makes the drone possible.

After all, if the Pentagon is serious about deploying autonomous systems at scale, it won't just need more drones.

It will need an entire American supply chain to support them.

The Bottom Line

For decades, military power was built around a relatively small number of expensive platforms.

The future appears to be thousands of lower-cost autonomous systems operating together in coordinated networks.

And whenever an organization as large as the Pentagon changes direction, investors should pay attention.

The exact winners remain to be seen.

But if this $55 billion proposal is any indication, the drone economy is about to get a lot bigger.

I'd rather be early than late.

Dave’s last word: We’ll have more to say on this theme in the days to come. Stay tuned.

In the meantime, it’s shaping up to be a sleepy summer day in the markets. The major U.S. stock indexes are flat in early trading. Precious metals are likewise consolidating their gains from earlier in the week. U.S. crude futures are up about 1% but still under $76. Bitcoin has pushed past $64,000 and Ethereum past $1,900.

Back to our regular fare tomorrow, including our always-skeptical take on the monthly job numbers. Catch you then…