Top 10 Drones And Drone Warfare Stocks

Fareful Times

Since we wrote our article “Top 10 Aerospace and Defense Stocks“, international geopolitics have kept taking a turn for the worse.

The Red Sea trade lanes are still mostly closed, the death toll of the conflict in Gaza is increasing, and tensions between Russia and NATO are still rising. Add to that the border conflict between Azerbaijan and Armenia, a possible Israel-Iran war, and mass protests over “foreign influence” in Georgia.

“This may be the most dangerous time the world has seen in decades.” – Jamie Dimon, JPMorgan CEO

Meanwhile, the trade war with China is escalating, with more sanctions on the Chinese semiconductor industry and quantum computing and 100% tariffs on Chinese cars. The question of a possible invasion of Taiwan at some point in the future remains.

Overall, markets have so far ignored these mounting risks, preferring to focus on the AI boom. Some of the leading defense ETFs have barely gone up since 2019, pre-Ukraine war.

Source: Yahoo Finance: iShares U.S. Aerospace & Defense ETF

Unmanned Warfare

The armed conflicts in Israel-Palestine, the Caucasus Mountains, the Red Sea, and Ukraine have demonstrated a very quickly changing method of warfare. Drones, both flying and on tracks, are increasingly taking over the role previously given to traditional weapons like artillery, tanks, missiles, warplanes, etc.

The victory might go toward who innovates and disrupts traditional warfare the fastest, with cheap drones and ammunition outperforming on a cost basis more advanced legacy systems.

For example, the recent attack by Iranian drones on Israel is estimated to have cost Iran around $50M-$100M. And consumed $1B to $1.5B worth of air defense systems.

Therefore, innovative drone makers, or defense companies able to counter drones in a cost-efficient manner might become the new defense giants of tomorrow.

And with the rivalry between great powers getting hotter, at the same time that traditional military systems might fail, defense spending will likely rise globally, correcting a trend of decline since the 1990s.

Source: Crescat Capital

We saw during the two years of the war in Ukraine both sides started by using civilian drones, like commercial small quadcopters, to progressively switch to custom design and military platforms.

It is almost certain that military leaders all over the world are carefully studying this development. And redesigning their procurement process towards what is proven to work in a real high-intensity war.

While civilian drone makers might also contribute, we focused this list on companies with a pre-existing military drone offering or companies with systems designed to counter drones with cheaper solutions than the current $1M a piece missiles.

Top 10 Drones, Electronic Warfare, And Defense Stocks

1. Kratos Defense & Security Solutions