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Drone stocks have left many investors underwater. The REX Drone ETF (NASDAQ: DRNZ) is down approximately 23% this year. But some individual names, such as Red Cat (NASDAQ: RCAT), are down much more. Those investors who haven't already taken a loss are wondering if they'll ever recoup their investment.

One option is to stay the course on the belief that future growth is a case of when, not if. Another strategy is to look at companies that make the components more than the finished product. But first, it's important to understand the state of the drone industry.

Drone Dominance Is Complicated

Drone stocks began to soar in June 2025 when President Donald Trump signed an executive order titled "Unleashing American Drone Dominance." It doesn't get more bullish than that. The U.S. was going all in on domestic drone manufacturing.

But spending from the U.S. government hasn't materialized as expected. And now, the government is taking steps to limit the presence of foreign competition in the drone space.

That's due to a second executive order signed by President Trump titled "Restoring American Airspace Sovereignty." That means the U.S. Government, which is the drone industry's largest customer, is now also directly dictating the breadth of the competitive landscape.

Why Drone Stocks Answer to Their Biggest Customer

What's happening in the drone trade is similar, but different, to the "regulate AI" debate. In that case, some of the same companies that are creating/refining the technology are asking for regulation. In the case of drone manufacturers, the calls for regulation are coming from their largest customer. That is, the U.S. government and specifically, the Pentagon.

That's terrible news for pure-play drone stocks like Kratos (NASDAQ: KTOS), which is down over 47% in 2026. But there's still hope for the drone trade if you look at where the money is flowing. Here are four stocks to consider.

Axon: A Counter-Drone Stock Hiding in Plain Sight

Axon Enterprise Inc. (NASDAQ: AXON) is best known for products such as TASERS and body cameras in the public safety space.

However, the company has a significant presence in the drone sector, including in the counter-drone space, which will be in demand.

Revenue from the company's Dedrone platform exceeded $100 million in Q2 2026. That was a key line item in the company's overall quarterly revenue, exceeding $804 million, a 35% year-over-year (YOY) increase.

AXON shares are down about 30% in 2026, but that decline seems to be more about higher component and memory costs. Demand remains solid.

AXON carries a consensus Moderate Buy rating and a consensus price target of $707.07.

AeroVironment: A Drone Leader Priced for Bad News

AeroVironment Inc. (NASDAQ: AVAV) is the closest thing the drone trade has to a blue chip. Its Switchblade loitering munitions and Puma reconnaissance drones are already in the field. The BlueHalo acquisition added counter-drone, space, and electronic warfare capabilities.

None of that has protected the stock. AVAV opened 2026 at $241.89. It now trades near $118, a drop of more than 51%. That’s a steeper decline than Kratos.

But this looks like a perception problem more than a fundamentals problem. AeroVironment reported fiscal 2027 first-quarter earnings of 59 cents per share on Sept. 9, far exceeding the consensus estimate of 22 cents per share. Revenue grew 5.7% YOY. That’s not explosive growth, but the business isn’t broken.

The company is also looking beyond Washington. In mid-October, it signed non-binding agreements with partners in Spain and Taiwan to support local production and sustainment. That diversifies its customer base just as U.S. spending is in question.

Analysts are cautious, not bearish. AVAV carries a consensus Moderate Buy rating from 26 analysts and a consensus price target of $225.80.

Swarmer: A High-Risk Bet on Drone Swarm Software

If drones are the hardware, autonomy software is the brain. That’s where Swarmer Inc. (NASDAQ: SWMR) plays. Its platform lets a single operator coordinate large groups of drones. The company says its software has supported more than 100,000 combat missions in Ukraine since April 2024.

This is the most speculative name on the list. Swarmer went public in March and traded as high as $31 per share on March 17. Since then, the stock has fallen roughly 70%. Q2 revenue was just $216,413, against a net loss of $7.3 million. It's also important to note that Swarmer is based in Ukraine and may not benefit from future U.S. defense spending.

So why consider it? First, its software is vendor-agnostic. Swarmer doesn’t need to win a hardware contract. It can ride on top of whoever does. Its SkyKnight licensing deal recently expanded to $3.9 million. It’s also partnered with Oak Grove Technologies to bring swarming to a platform built for U.S. Special Operations.

Second, Swarmer is buying scale. In September, it agreed to acquire Ukrainian ground robotics maker Ratel Robotics for up to $224 million in cash and stock. Ratel has secured $86 million in contracts this year. The stock plunged on dilution fears after the announcement.

Wall Street isn’t buying the story yet. Only one analyst covers SWMR, and that analyst rates it a Sell. Investors buying here are betting on execution, not current numbers.

Unusual Machines: Picks and Shovels for Drone Makers

Unusual Machines Inc. (NYSEAMERICAN: UMAC) is the purest expression of the components strategy. The company makes NDAA-compliant motors, cameras, flight controllers, and other parts for drone makers. As Washington squeezes out foreign suppliers, domestic component makers become harder to replace.

The numbers back that up. Q2 revenue came in at $16.72 million, crushing analyst estimates of $9.2 million. That was a 687% YOY increase. Enterprise customers accounted for about 95% of sales.

Management is tempering near-term expectations, though. It’s targeting $12 million to $14 million in Q3 revenue while it installs a high-speed motor line. The Q4 target jumps to $25 million. Neither figure is formal guidance, so the Nov. 5 earnings report will be a key test.

UMAC is up about 30% in 2026, the only stock on this list in positive territory. But it’s well off its 50-day high of $34.06. That pullback gives investors a second chance. UMAC carries a consensus Buy rating from six analysts. The consensus price target of $37 implying significant potential upside.

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