Hey there, bargain hunter.
Here’s a number that should stop you cold: $54.6 billion.
That is the proposed FY2027 budget request for the Defense Autonomous Warfare Group — DAWG — a Pentagon organization that’s only recently been formalized in public reporting. The prior year’s figure has been widely reported as roughly $225 million, implying an eye-popping year-over-year jump. Then in late May, the Wall Street Journal reported the Trump administration was in active talks to structure funding deals that could include debt and equity arrangements — potentially resulting in direct U.S. government ownership stakes — in a group of American drone companies.
The drone sector exploded. Unusual Machines surged 57% in one day, and AeroVironment gained about 18% (with other names in the theme also jumping sharply).
Then the same stocks gave most of it back.
AeroVironment (AVAV) is down roughly 45% year-to-date as of June 25, 2026 and closed at about $151.81 today. That’s more than 60% below its all-time (and 52-week) high close of $409.83 set on October 13, 2025. Kratos (KTOS) has also been volatile, but the specific claim that it “peaked near $134 in January” could not be verified from credible price-history sources. Red Cat (RCAT) has been volatile in both directions.
The sell-off may reflect valuation pressure and capital rotation, but the specific attribution to “a Bernstein analyst” could not be verified, so I’m not assigning it to any one firm here.
Here’s the thing: the contracts are still coming in.
AeroVironment won a $186 million U.S. Army delivery order for next-generation Switchblade systems on February 26, 2026. The Army also awarded roughly $17.6 million for Red Dragon systems in March. In May, AV secured a $43 million Department of War (DoW) Test Resource Management Center contract related to SkyRange telemetry work, and separately announced a $20 million Air Force Research Laboratory (AFRL) CAMP contract focused on advanced ceramic materials. The company has been reporting backlog and production volume growth that would have looked unimaginable at the start of 2024. AVAV’s next earnings report is scheduled for June 29, 2026 — just days away.
Kratos is the name I find most interesting at current prices. The company makes the XQ-58A Valkyrie — a jet-powered drone designed to fly alongside manned fighter jets as an autonomous wingman. In January 2026, the Marine Corps selected a Northrop Grumman–Kratos team for its MUX TACAIR Collaborative Combat Aircraft effort built around the Valkyrie, with an initial value widely reported at about $231.5 million.
But a few of the financial specifics in the original draft don’t hold up. Kratos’ most recently reported backlog (as of March 29, 2026) included funded backlog of $1.457 billion and unfunded backlog of $553.5 million (not a single “$1.57 billion backlog” figure as stated). Also, Kratos’ $1.45 billion MACH-TB 2.0 hypersonics award is real, but it dates back to 2025 — not a new 2026 win that “has barely registered” yet.
The Bigger Picture
The drone market is not just a defense story anymore. One widely cited industry forecast (Grand View Research) expects the global drone market to grow from about $73.1 billion in 2024 to about $163.6 billion by 2030, compounding at roughly 14% annually. Defense contracts aren’t just revenue — they’re R&D funding for the commercial wave. The companies building production capacity for the Pentagon today are also building the IP and supply chains the civilian market needs tomorrow. The GPS parallel is instructive: designed as a military tool, now embedded in every logistics network on the planet.
Public budget materials and secondary reporting describe DAWG as a major driver of autonomous-systems investment inside the FY2027 request, though the precise scope language in the original draft (e.g., “agentic AI infrastructure” enabling swarms to “execute targeting decisions… without human input at every step”) could not be verified from an official FY2027 DAWG “briefing” document, so I’m not quoting that as Pentagon-authored phrasing.
What to Watch
- KTOS: The Marine Corps’ Valkyrie-based CCA effort is real, with an initial value reported around $231.5M. Kratos’ reported backlog (as of March 29, 2026) included $1.457B funded and $553.5M unfunded. MACH-TB 2.0 is a real $1.45B hypersonics testbed award, but it dates to 2025.
- AVAV: Earnings on June 29. Near-term margin headwinds from BlueHalo integration are real, but the “buy zone” claim at $150–$152 is analyst-specific and wasn’t verified here — the verifiable part is that the stock is trading right around ~$151 as of June 25, 2026.
- RCAT (Red Cat): Smaller, higher-risk, higher-reward. Defense-focused drone platforms with growing production scale.
- JEDI ETF (Drone and Modern Warfare): The Defiance Drone & Modern Warfare ETF (JEDI) surpassed $100M in assets under management as of April 20, 2026 (announced April 27, 2026) — not specifically “in May 2026.”
The Honest Risk
The equity stake deal with the Pentagon has not been signed. It’s still described as talks/negotiations, and scrutiny is likely given the unusual nature of direct government ownership stakes and the report that at least one company under discussion has Donald Trump Jr. on its advisory board.
Also: the Iran/Strait of Hormuz scenario in the original draft is too specific to treat as factual without corroboration, so I’m not presenting it as a known valuation driver here. And the “KTOS was trading near 183x forward P/E” claim could not be verified from credible, dated valuation data tied to that specific January window, so it’s removed.
That said. The budget request number is real. The contracts are real. The DAWG line item being discussed as a move from roughly ~$225M to a ~$54.6B request in one year is real in the reporting. The stocks are off more than 50% from peak. At some point those two things meet in the middle.
AVAV reports on June 29, 2026. That might tell you something.