Investors have faded drone stocks in 2026. But many companies in this sector continue to deliver strong results. So why the disconnect with stock prices? In a word, valuation. The drone industry has a long runway for growth, and stock prices have gotten well ahead of that story.
Each of the stocks presented here shares a common theme. Each has climbed in the last five years. However, they are all down sharply from all-time highs made in early 2026. That doesn’t mean investors have lost faith in these companies. It just means that investors have taken profits on stocks that have a bright future but an overvalued present.
The Pentagon Has Plans to Dramatically Increase Spending on Drone Technology
One of the drone industry’s largest customers is the U.S. military. Unmanned, autonomous vehicles will play a key role in the future of warfare. That commitment is outlined in the Pentagon's $1.5 trillion budget request in April 2026.
That request earmarks $53.6 billion for autonomous drone platforms and contested logistics. Another $21 billion is reserved for munitions, counter-drone technologies, and advanced systems like the Collaborative Combat Aircraft and MQ-25. That means approximately $75 billion out of $1.5 trillion is dedicated to this sector. This would represent the largest investment in drone warfare and counter-drone technology in U.S. history.
To put that number in perspective, the three stocks in this article delivered a combined trailing 12-month (TTM) revenue of around $3.4 billion. It’s true that these aren’t the only names in this space, but it does show investors the size of the opportunity.
AeroVironment: A Pure-Play Bet With Room to Recover
AeroVironment (NASDAQ: AVAV) is probably one of the best pure-play names in the drone sector. AVAV is up more than 50% in the last five years, but it’s down 40% in the last 12 months.
The concern isn’t about revenue growth. It's more about how much the company will have to invest to fulfill that growth. Adjusted earnings per share (EPS) growth year-over-year (YOY) in the company’s fiscal year 2027 (FY2027) is projected in a range between $3.02 and $3.34. At the high end of that range, it would be roughly flat YOY.
In addition to a falling stock price, analysts’ price targets have also declined since the company’s fourth-quarter earnings report for FY2026.
However, this seems to be the case of investors setting a lower ceiling, and the consensus price target of $266.68 still leaves an impressive 71% upside.
Kratos: A Direct Line Into the Pentagon's Drone Buildout
Like AeroVironment, Kratos Defense & Security Solutions (NASDAQ: KTOS) has seen its price targets lowered by analysts since the company’s Q1 2026 earnings report. However, also like AVAV, analysts are still forecasting significant upside. In this case, analysts give KTOS a consensus price target of $101.29, which is over 100% higher than the stock’s price as of this writing.
Kratos delivered Q1 2026 revenue of $371 million, up 22.6% year-over-year, alongside a record $2 billion backlog and an opportunity pipeline exceeding $14 billion. Much of that momentum ties directly to the Pentagon's spending priorities outlined above.
Kratos is viewed as a key beneficiary of the Pentagon's $1.1 billion Drone Dominance Program, thanks to its AI-enabled XQ-58A Valkyrie drone and existing defense backlog. The company also successfully completed flight testing of its Firejet target drone, powered by a domestically produced J85 engine, reinforcing its vertically integrated drone-and-propulsion strategy while easing supply-chain risk.
Kratos reports Q2 2026 earnings on Aug. 4, with analysts expecting EPS of 13 cents (up 18.18% YOY) and revenue of $411.7 million (up 17.1% YOY). The company has beaten earnings estimates in each of the last four quarters. Investors should note KTOS trades at a steep premium, so execution on this backlog matters more than headline growth alone.
Red Cat: Small-Cap Exposure to Outsized Revenue Growth
Red Cat Holdings (NASDAQ: RCAT) is the small-cap name among these three stocks with a market cap of around $990 million as of this writing. It’s also the only name on this list that’s not delivering positive EPS.
But that’s where the asymmetric opportunity may lie.
The U.S.-based provider of advanced all-domain drone and robotic solutions for defense and national security is starting to take off.
In Q1 2026, Red Cat delivered YOY revenue growth of 849% with a gross margin that grew 199% from the prior quarter. That means that the company should have sufficient revenue to prevent the shareholder dilution that has weighed on earnings.
That could shift the risk-reward of RCAT into investors’ favor. Analysts have a consensus price target on RCAT of $21.40, which would be a gain of over 160% from is price as of this writing.
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The article "3 Drone Stocks That Should Soar After the Summer Slump" first appeared on MarketBeat.
