The drone industry’s significance in the market has grown, and at the start of 2026 many analysts suggested that this was the year investors would cash in on its potential. By and large, however, it hasn’t turned out that way, at least through mid-May.
The Drone UCITS ETF (ticker: DRON.L), a new exchange-traded fund launched on the London Stock Exchange in March, has struggled to get off the ground, falling 18.9% in the past month. Even more alarming, industry bellwethers like AeroVironment Inc. (AVAV) and Ondas Inc. (ONDS) have been teetering back into the red for most of 2026.
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So what’s the story with underperforming drone stocks in a year when they should have gone gangbusters?
One decent argument is that popular stocks like AVAV, ONDS, Red Cat Holdings Inc. (RCAT) and Kratos Defense & Security Solutions Inc. (KTOS) have run too far and too fast for investors, as drivers like AI hype, a defense industry spending frenzy and military drone demand have diminished. Increasingly, investors are now in valuation reassessment mode and finding that drone companies still have weak profits or uncertain commercialization timelines.
“What many investors are still failing to realize is that drone stocks are effectively a physical embodiment of AI, meaning that their overlooking of the industry is the equivalent of missing out on a high-potential artificial intelligence opportunity,” says Ivan Marchena, senior economist at global brokerage brand Just2Trade.
Marchena also notes the “different challenges” faced by drone stocks versus more traditional AI firms. “Although periods of high geopolitical uncertainty can see demand for drones increase, it also offers an opportunity for new market rivals to secure contracts that could usurp long-term industry players,” he says. “It also means that stocks can become more volatile depending on the outcome of short-term conflicts like the Iran war and recent U.S. involvement in Venezuela.”
Yet, pull the lens back and some data reveal that drones are a “can’t miss” sector for prudent investors. The latest Global Drone Industry Market report shows the civil drone market is expected to grow from $44.4 billion this year to $83 billion by 2035, representing a 7.2% compound annual growth rate over a decade.
A widely cited 2026 report from Oppenheimer threw more logs into the fire, projecting the worldwide drone industry will grow from $45 billion to $400 billion in 10 years, and that drones represent the earliest large-scale example of artificial intelligence at a commercial scale.
So, the counterargument to the downbeat drone performance in 2026 is that the unmanned aerial aircraft industry could be a huge winner for investors even a year or two from now. Which industry companies will top that list? These drone stocks are expected to lead the way:
| DRONE STOCKS | MARKET CAPITALIZATION* | FOCUS |
| AeroVironment Inc. (AVAV) | $8.1 billion | Manufactures unmanned aircraft systems. |
| Ondas Inc. (ONDS) | $4.7 billion | Autonomous drone interceptors and counter-drone defense tech systems. |
| Kratos Defense & Security Solutions Inc. (KTOS) | $10.4 billion | Unmanned systems, turbine technologies and space ground management. |
| Rocket Lab Corp. (RKLB) | $77 billion | Affordable space-launch systems and infrastructure for the satellite market. |
| Red Cat Holdings Inc. (RCAT) | $1.3 billion | Software systems for drone navigation, mapping and robotics. |
| Taylor Devices Inc. (TAYD) | $166.6 million | Shock absorption, rate control and energy storage devices. |
| Swarmer Inc. (SWMR) | $350 million | Autonomous drone swarm software and battlefield AI solutions. |
*As of May 20.
AeroVironment Inc. (AVAV)
AeroVironment continues its 2026 tailspin, as its stock price has fallen about 18% over the past month and has slid 33.8% year to date. What’s happened to this former highflier? For starters, like many market plunges, AVAV’s freefall wasn’t attributed to a single issue. Instead, it fell victim to weak quarterly earnings and the loss of a $1.7 billion drone contract with the U.S. Space Force, which fueled a reassessment of AVAV shares by company management. AeroVironment’s full-year revenue guidance now stands at $1.85 billion to $1.95 billion, down from $1.95 billion to $2 billion, with most fingers pointing to the abandoned Space Force deal.
Yet at its current $161 share price, investors could get a former drone-industry powerhouse at a significantly reduced price. Consensus analyst estimates put AVAV’s true share value closer to $240, indicating an undershot of about 33%.
Good news is starting to percolate for AVAV, and investors should expect more of the same. In late April, AeroVironment unveiled its Locust laser weapon system, which effectively detected, tracked and neutralized multiple drones in a test aboard the USS George H.W. Bush aircraft carrier.
“Rolling Locust onto a ship and quickly initiating operations facilitates the expanded use of high-energy lasers across the fleet without the need for costly, time-consuming ship modifications,” says John Garrity, vice president of directed energy systems at AeroVironment. “This is a game-changer for the Navy and for our national security.”
After the laser weapon test was announced, AVAV shares soared 8.5% in the next 24 hours.
Ondas Inc. (ONDS)
Ondas shares continue to disappoint in 2026, with the stock down 6.5% year to date. Several key factors may be undermining share performance, such as a softer drone market and higher drone-development costs, but the defense industry has a big need for anti-drone defense technology, as illustrated by the successful Iranian drone strikes against the U.S. and Israel in March. ONDS appears to be well qualified for that role, as it has one of the select few autonomous drone interceptor technologies (called Iron Drone Raiders) that can breach and deactivate small drones like the ones Iran has been using against the U.S. this spring.
Ondas has been selected to deploy counter-drone protection in the upcoming FIFA World Cup soccer matches across the U.S. in June and July. Additionally, Ondas is launching a large-scale de-mining program along Israel’s eastern border in what amounts to a $50 million contract for the company.
In late April, Ondas signed off on its merger with Mistral, a U.S.-based defense prime contractor with decades of experience supporting U.S. military, federal and public safety programs. The $175 million merger opens the door to “direct prime contractor access to U.S. Army and Special Operations contract vehicles,” Ondas said in a statement. “The transaction marks a significant step in Ondas’ strategy to expand direct participation in large-scale U.S. government programs.”
It’s no wonder that a consensus call from five defense industry analysts has a $20 price target on ONDS shares, representing a 122% upward tilt from its current $9 share price.
Kratos Defense & Security Solutions Inc. (KTOS)
Kratos, a recent addition to the S&P SmallCap 600 Index, has suffered the same fate as its drone-industry peers, with its share price down 29.6% year to date. A stellar first-quarter earnings report, highlighted by a 45.8% year-over-year rise in revenue, has helped the stock stabilize recently. Growth was especially high in Kratos’ unmanned systems unit, where revenues rose by 30.9%, while turbine technologies saw a 20.3% revenue increase.
The company also reported a $2 billion order backlog, which should provide plenty of cash flow for the rest of 2026. A big cornerstone piece of the investment picture is Kratos’ $447 million deal with the U.S. Space Force to design, integrate and operate the ground management architecture for its Resilient Missile Warning and Tracking (MWT) program in medium Earth orbit.
Wall Street analysts have set a $106 consensus price target, indicating a 103.9% share-price gain in the next year.
Rocket Lab Corp. (RKLB)
Long Beach, California-based Rocket Lab is on a major roll in 2026, with its share price up 83% year to date and up 50% in the last month alone. Analysts cite Rocket Lab’s robust position in the burgeoning space economy, noting that it is one of the few legitimate alternatives to SpaceX in launch systems, particularly for launch affordability. In particular, Rocket Lab joins SpaceX as an in-demand space-launch option in the AI data centers and telecom markets, where business is brisk in 2026.
Rocket Lab also made news when it announced 36 new space-launch contracts in the first quarter of 2026, which is more than all of the company’s 2025 contracts. With the space race clearly on, as SpaceX is likely to go public next month, Rocket Lab’s stock price is rising accordingly.
Red Cat Holdings Inc. (RCAT)
At first glance, this San Juan, Puerto Rico-based drone services company seems to be slumping, with its share price down roughly 30% in the past 30 days. In its defense, there’s no specific downbeat news to report, like poor earnings, insider selling or a dearth of contracts — none of that applies here, save for a pause in the U.S.-Iran conflict. (The U.S. operation relied heavily on one-way unmanned attack drones to take out Iran’s nuclear arsenal, with Red Cat playing a key role.)
In fact, there’s high demand for Red Cat tech in 2026, as the company specializes in software systems for drones and other robotics products. Its navigation and mapping business provides imaging tools to collect data, and it also develops systems that plan and control flight operations and analyze data in real time.
The company’s new pact with AI drone software firm Safe Pro Group will help RCAT’s drones add AI threat-detection capabilities. Formal testing is planned for this summer.
On May 19, the company also announced an all-stock acquisition of Quaze Technologies for $21 million. Quaze is expected to supply Red Cat with its platform-agnostic wireless power system to fuel Red Cat’s drones, giving RCAT a big boost in the rising global autonomous systems market.
An analyst consensus on TipRanks pegs Red Cat as a stellar “buy” option for investors, with a $21 price target on the stock (it’s now trading around $9 per share), representing 133% potential upside.
Taylor Devices Inc. (TAYD)
Founded in 1955 by Paul H. Taylor, this North Tonawanda, New York-based company specializes in the design, development, manufacture and marketing of shock absorption, rate control and energy storage devices.
The company’s stock is in a lackluster mode, down 14.2% year to date, with eyebrows raising after company director Robert Michael Carey sold 5,000 shares worth nearly $284,000 in April. That may have shifted investor sentiment on TAYD shares, as it represents the third sizable insider share sale in the past year with no offsetting insider buys to balance it out.
Analysts largely remain bullish on the stock, with a consensus price target of $67, while it is currently trading at $51 per share. That translates into a 31.4% upside for TAYD as Wall Street expresses confidence in Taylor, which has shown robust profitability and an equally sturdy, debt-free balance sheet over the past year.
Swarmer Inc. (SWMR)
Swarmer, which went public on March 17, has seen its share price decline by about 20% over the past month, after an upbeat IPO that saw SWMR shares rise from $5 to $31 on day one, a 520% increase, enabling the Austin, Texas-based company to raise about $15 million through the sale of 3 million shares.
So why the fall in Swarmer’s share price? The company’s Q1 earnings report may have disappointed investors, with a significant decline in year-over-year revenue. Additionally, Swarmer, which specializes in autonomous drone-swarm software and AI solutions, faces intense competition in the drone marketplace and has yet to find a solid footing.
In its favor, Swarmer has a $33 million backlog, targets $20 million in 2026 revenue, and just announced that its subsidiary, Swarmer Estonia OÜ, has inked a contract with Meta Bureau valued at $2.9 million. The deal calls for over 16,000 software licenses intended for use on the latter’s SkyKnight quadcopter bombers and other unmanned aerial vehicles, and it should provide a young company with much-needed ballast.
Are Drone Stocks Being Overlooked Right Now?
It’s difficult to argue that drone stocks are being ignored by investors lately, given that military drones are among the most widely deployed real-world applications of AI.
“Autonomous swarming, computer vision and edge computing on the battlefield are in demand, and the market has been fixated on data centers and large language models,” says Kunal Desai, founder of Bulls on Wall Street, a trading education platform. “Companies like AeroVironment and Kratos are growing revenue 20% to 26% year over year with billion-dollar backlogs, and they get a fraction of the attention a speculative AI software company would get at those growth rates.”
It could be that investor reluctance is a timing issue, and one that should soon dissipate.
“Historically, the stock market has been driven by ‘always buy the rumor, sell the news,'” Desai says. “Drone stocks ramped hard before the Iran conflict escalated and in the early days. Once the war was underway and the headlines were everywhere, the initial move faded. Names like RCAT … are sitting on their 200-day moving averages right now, so you could say the first run already happened.”
The Iran pullback can be an opportunity, but only if the conflict deepens or a new front opens. “That’s when you get aggressive,” Desai notes. “If things stabilize, these names keep fading. The people who made the real money were positioned before the headlines.”
Desai also notes that the cyclical plays linked to President Donald Trump should be a case study for drone investors. “Almost every Trump-connected trade — crypto, prediction markets, defense — follows the same arc: insiders get positioned early, the news breaks, retail piles in and then it crashes once the hype fades,” Desai adds. “Multiple crypto treasury plays tied to the Trump family are down 80% to 90% from their peaks after a brief initial ramp. The drone names could follow the same trajectory if you chase them after the move.”
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7 Best Drone Stocks to Buy in 2026 originally appeared on usnews.com
Update 05/20/26: This story was published at an earlier date and has been updated with new information.
