If you missed the drone stock rally that sent the REX Drone Economy ETF (DRNZ) soaring 57% between November and January, the market is giving you a second chance. The ETF has pulled back nearly 15% from its peak, and the underlying thesis hasn’t changed one bit. In fact, it’s only gotten stronger — Congress just passed an $839 billion defense spending bill for fiscal 2026, with a staggering $9.8 billion specifically earmarked for autonomous and unmanned systems. That includes drones, autonomous vehicles, AI-enhanced battlefield systems, and next-gen unmanned platforms. When the Pentagon writes checks that big, supply chains form and multi-year demand follows.
The battlefield evidence is impossible to ignore. According to the United Nations, drones now account for roughly 80% of battlefield casualties in Ukraine and 27% of civilian deaths. The Hudson Institute calls the Russia-Ukraine war “a tactical and technological inflection point” where cheap, networked drone systems have fundamentally changed how wars are fought. Military planners worldwide are watching and drawing the obvious conclusion: drones aren’t optional anymore. They’re becoming standard infrastructure for any serious defense force. The $9.8 billion in U.S. spending is just the beginning — NATO allies, Pacific theater nations, and Middle Eastern powers are all racing to build out drone capabilities.
For investors looking to play this trend, the ecosystem breaks down into clear tiers. At the top are core manufacturers like Kratos Defense (KTOS) and AeroVironment (AVAV) — established names with proven government contracts. Then there are subsystem and defense technology suppliers like Leonardo DRS and Elbit Systems (ESLT), which provide the sensors, communications, and targeting systems that make drones effective. For those with higher risk tolerance, smaller names like Red Cat Holdings (RCAT) and Draganfly (DPRO) offer more speculative upside. Kratos alone has delivered a 400%+ return from early 2024 through 2026 for investors who caught the trend early.
The key here is discipline. After a major rally and subsequent pullback, the temptation is to chase momentum. Don’t. The smart play is to build positions on weakness, respect technical levels, and let the multi-year trend work in your favor. This isn’t a trade — it’s a secular shift in how the world fights wars and eventually how it automates everything else. Citi estimates the number of AI-powered robots (including drones) could reach 1.3 billion by 2035. At current prices, you’re buying into that future at a discount. The defense sector doesn’t get dips like this often — when it does, seasoned traders pay attention.