The Fed Is Expected to Raise Rates on Wednesday for the First Time Since 2023

The gap between demand and price was the story of the week. AeroVironment posted the strongest backlog in company history and watched its stock trade 65% below last October’s high. Canada announced it needs to go from roughly 2,000 military drones to millions inside two years, which is an admission that a G7 military has almost no drone inventory at all. A commercial airport in a major American city lost two and a half hours of operations to one unidentified aircraft, nine months after Congress gave local police the authority to stop exactly that and ten months into a federal certification pipeline that has produced about sixty qualified officers. The Air Force asked industry to build cargo planes that launch drone swarms and skipped the feasibility phase entirely.

Here’s the breakdown:

AeroVironment reported fiscal 2027 first quarter results on September 9 for the quarter ended August 1. Revenue came in at $480.5 million, up 6% year over year and a first-quarter record, with Autonomous Systems contributing $346.0 million and the Space, Cyber and Directed Energy segment contributing $134.5 million.

Bookings were approximately $0.7 billion, producing a book-to-bill ratio of 1.4. Funded backlog reached a record $1.5 billion, up from $1.2 billion on April 30 and 37% higher than a year ago. Including roughly $1.4 billion of unfunded backlog, total backlog now stands near $2.8 billion.

The demand signal was difficult to argue with. The earnings conversion was less clear. Autonomous Systems generated approximately $62 million of adjusted EBITDA on $346 million of revenue, while Space, Cyber and Directed Energy lost roughly $9 million on $134.5 million of revenue. Free cash flow was also negative as AeroVironment continued investing in manufacturing capacity. Management therefore maintained rather than raised full-year guidance of $2.125 billion to $2.225 billion in revenue, $305 million to $325 million of adjusted EBITDA and $3.02 to $3.34 of adjusted earnings per diluted share.

That distinction is increasingly the AeroVironment story. Funded backlog represents contracted work where funding has already been obligated, substantially reducing demand uncertainty. A 1.4 book-to-bill means the company booked roughly $1.40 of new business for every dollar of revenue recognized during the quarter. But backlog does not determine the margin, timing or cash required to deliver that work.

The $464.8 million Enduring High Energy Laser production award announced September 2 came after quarter-end and therefore is not included in the $1.5 billion funded backlog. It also falls into the Space, Cyber and Directed Energy business, which is the segment where investors most need to see backlog translate into profitable production.

The share price reflects that skepticism. AVAV jumped roughly 13% to 14% intraday after the release but remains about 39% below its level at the start of the year and roughly 65% below its October 2025 peak. The market is no longer questioning whether AeroVironment can win orders. It is waiting for evidence that record demand can be converted into higher margins, earnings and free cash flow.

Prime Minister Mark Carney and President Volodymyr Zelenskyy signed a declaration in Calgary on September 10 establishing a 100-year partnership between Canada and Ukraine covering defense, security, trade, reconstruction, energy, critical minerals and technology, with drone production a major component of the new defense relationship. Carney said the Canadian Armed Forces currently have roughly 2,000 drones and will need millions in the years ahead. More immediately, Canada wants its domestic industry to have the capacity to produce millions of drones within two years.

Canada awarded up to $50 million in initial Defence Drone Initiative contracts intended to increase the number of drones currently deployed by the Canadian Armed Forces tenfold. Ottawa also committed approximately $350 million through the U.S.-led JUMPSTART mechanism for air-defense interceptors for Ukraine. Carney said one-third of the drones manufactured under Canada’s expanding industrial effort will support Ukraine. The government also launched the Defence Drone Initiative Marketplace, a digital procurement system modeled on Ukraine’s Brave1 that gives military users access to nearly 400 qualified Canadian suppliers.

The structure is what makes this different from simply transferring weapons to Ukraine. Canada is using Ukrainian battlefield experience to build its own domestic drone industry, linking procurement to new factories, supply chains and component capacity while establishing a long-term government-to-government framework for jointly producing uncrewed systems, counter-drone technology and munitions. The result is an industrial relationship rather than simply another aid tranche: Canadian manufacturers gain production volume and operational knowledge, while Ukraine gains a continuing source of allied manufacturing capacity.

The marketplace is already producing awards. Draganfly announced on September 8 that it had qualified across all five capability streams of the Defence Drone Initiative Marketplace. On September 9 it appointed retired Royal Canadian Air Force Colonel Kevin Leblond to lead its Canadian defense and security business, and on September 11 it announced a five-year tactical ISR agreement with the Canadian Armed Forces. The initial order covers 100 systems, with options for as many as 4,900 additional aircraft.

The number worth tracking is not Canada’s current 2,000-drone inventory by itself, but the industrial response to it. Ottawa is moving first from roughly 2,000 drones to a tenfold increase in deployed systems, while simultaneously trying to create domestic capacity capable of producing millions within two years. If other NATO governments reach the same conclusion, that modern militaries require drone inventories measured in hundreds of thousands or millions rather than thousands, the constraint quickly shifts from demand to factories, components and production capacity.

San Diego International Airport lost two and a half hours of operations on Friday, September 4 after multiple drones were observed near the field, including one hovering 20 to 25 feet above the air traffic control tower, alongside a high-altitude balloon. The FAA issued a ground stop from roughly 2:00 p.m. to 4:30 p.m. on the Friday of Labor Day weekend. More than 400 flights were delayed, arriving aircraft held over the Pacific and several diverted. San Diego operates a single runway, so the disruption propagated through the national system. The TSA opened an investigation with no sensor data, no trajectory history and no operator position, because nothing at the airport was recording any of it. Brussels Airport halted traffic after a drone sighting on the evening of September 12.

The legal picture changed a year ago and the operational picture did not. The SAFER SKIES Act passed in the fiscal 2026 National Defense Authorization Act and was signed on December 18, 2025. A Justice Department and Homeland Security interim final rule took effect July 1, 2026, allowing certified state, local, tribal and territorial law enforcement to detect, track, disrupt, seize and when necessary destroy drones posing credible threats. Certification runs through a single channel, the FBI’s National Counter-UAS Training Center at Redstone Arsenal. The first class graduated approximately 12 officers in November 2025, and roughly 60 personnel held mitigation certification as of June 2026, against approximately 17,500 state and local police agencies and more than 1,000 correctional facilities.

Authority arrived. Capacity did not. Sixty certified officers cannot cover 18,500 agencies, and the single federal schoolhouse that produces them is the constraint on the entire domestic counter-drone market. Detection is where the spending starts, because detecting a drone requires no special authority and no certified operator, and every airport, stadium, prison and utility that watched the San Diego footage now has a budget conversation it did not have in August. There is still no federal requirement that a commercial airport field drone detection at all. San Diego is what that absence looks like on a holiday Friday, and it will not be the last airport to demonstrate it.

The Air Force issued a Small Business Innovation Research solicitation on September 9, with responses due October 21, seeking to convert cargo aircraft into what it called adaptive, force-multiplying launch platforms. The solicitation carries three objectives: using mobility aircraft as high-altitude motherships for autonomous drone swarms, building self-protection systems for those aircraft in contested airspace, and fielding AI-controlled swarms for autonomous base perimeter defense. The Air Force is skipping SBIR Phase I and moving straight to Phase II, stating that multi-drone AI coordination is already proven in the private sector.

Phase I exists to establish technical feasibility before the government commits development money. Skipping it is the Air Force saying the feasibility question has already been answered commercially and that paying to re-answer it wastes a year. That is a procurement judgment about the maturity of autonomy software, and it routes money toward companies that write coordination and control code rather than toward companies that bend metal.

The Navy is running the same calculation on a larger airframe. An August 31 request for information for a carrier-based collaborative combat aircraft, with industry responses due this month, specifies capacity for four 2,500-pound class munitions in roughly the footprint of an F/A-18E/F, catapult launch and arrested recovery up to Sea State 5, and compatibility with the Joint Precision Approach and Landing System. The Navy stated it will accept external weapons carriage rather than internal bays, trading stealth for lower unit cost. Two services, two very different programs, and the same design constraint at the center of both: the airframe has to be cheap enough to lose.

Iran’s Revolutionary Guard Corps Navy claimed on September 8 to have captured an Anduril Dive-LD autonomous undersea vehicle near the entrance to the Strait of Hormuz, releasing images of the Anduril-branded craft. U.S. Central Command spokesman Navy Captain Tim Hawkins said the vehicle had been dead in the water for more than a day before any Iranian action, was defective and malfunctioning well beforehand, and carried no classified sonar or radar equipment and collected no sensitive data.

The Dive-LD is a three-ton torpedo-shaped autonomous submarine built for multi-week missions in intelligence collection, mine countermeasures and anti-submarine work, procured under the Replicator initiative at a reported unit cost near $2.5 million. Anduril said the vehicle had already logged thousands of hours across months-long operations in the CENTCOM theater.

Compare the response to what a captured manned platform or a downed $30 million Reaper produces. There was no recovery operation, no diplomatic incident and no operational pause (that was publicly announced). Iran spent a naval operation retrieving a broken $2.5 million machine with nothing classified aboard, and the United States lost a unit of inventory. Attritable systems are supposed to behave exactly this way, and this is the first time the concept has been tested in public against an adversary that wanted a trophy.

Anduril is having the quarter of its life while remaining private. Taiwan signed a NT$26.9 billion contract, roughly $847 million, in late August for 1,554 Altius-700M loitering munitions and 478 Altius-600 ISR aircraft, with deliveries starting in the fourth quarter of 2026 and running through June 2033. Secondary market pricing in early September implied a valuation near $100 billion against the $61 billion mark set in the company’s May raise.

Ukrainian air defenses shot down Geran-5 jet-powered attack drones near Kyiv on consecutive nights in early September. Ukrainian military intelligence puts the Geran-5 warhead at approximately 90 kilograms against roughly 20 kilograms on the original Shahed-136, with a cruising speed of 500 to 600 kilometers per hour against roughly 185, a length near six meters and a wingspan up to 5.5 meters. The aircraft uses a Chinese-supplied Telefly jet engine with greater thrust than the Geran-3. By August, Russian production of jet-powered Geran variants had surpassed piston-engine output for the first time.

Speed is the entire change. A propeller-driven Shahed moving at 185 kilometers per hour can be engaged by mobile gun teams, interceptor drones, helicopters and in some cases small arms, which is why Ukraine has been able to hold intercept costs down at all. At 600 kilometers per hour with a 90 kilogram warhead, the cheap layer of the defense stops working and the defender is pushed back toward surface-to-air missiles and directed energy. That is the same cost-per-engagement problem the U.S. Army spent $464.8 million on lasers to solve, arriving from the offensive side faster than the defensive side can field an answer.

The supply chain underneath it runs both directions and only one of them is restricted. Russia is sourcing Chinese jet engines for one-way attack drones while Beijing’s own export controls, effective since September 1, 2024, restrict outbound sales of aero engines above 16 kilowatts, infrared imaging, high-precision inertial measurement units, synthetic aperture radar and long-range wireless communications.

Those are the same component categories Western manufacturers need. European buyers are responding by shortening their own timelines: Lithuania’s defense ministry bypassed standard procurement rules in early September to acquire trial batches of interceptor drones and short-range and passive radars from multiple manufacturers, testing them under operational conditions before selecting suppliers rather than after.

The week separated companies with funded contracts from companies with announcements, and the market did not treat them the same way.

AeroVironment (AVAV) delivered the sector’s most important print. Fiscal first quarter revenue of $480.5 million beat consensus near $458 million, adjusted earnings came in well ahead of expectations, and funded backlog hit a record $1.5 billion on a 1.4 book to bill. Shares gained roughly 10% on the day and remain down about 39% year to date. Bank of America cut its target to $185 from $225 and kept a Buy rating. The next catalyst is conversion, specifically whether the directed energy segment can scale manufacturing in Albuquerque fast enough to turn the E-HEL award into recognized revenue.

Draganfly (DPRO) had the busiest week in the small-cap group on the back of Canada’s drone announcement. The company qualified across all five capability streams of the Defence Drone Initiative Marketplace, disclosed a five-year tactical ISR agreement with the Canadian Armed Forces, and named a retired Canadian Forces colonel on September 9 to lead its Canadian defense and security business. Draganfly also cited an FAA Section 44807 exemption granted September 1 for heavy-lift operations above 55 pounds, and second quarter revenue up 26% year over year.

Unusual Machines (UMAC) put $20 million into XTEND, the Israeli tactical robotics firm, giving it a strategic and economic relationship with a combat-proven autonomy company. That follows the September 3 Altana partnership aimed at automating supplier verification against NDAA and FCC rules. Second quarter revenue was $16.7 million, up 687% year over year, which speaks to how small the base was a year ago and how quickly domestic component demand has moved.

Palladyne AI (PDYN) saw chief executive Ben Wolff buy 17,121 shares in the open market at a weighted average price of $5.79 on September 8, and management presented at the Jefferies Global Industrials Conference on September 9 and Lake Street’s Best Ideas Growth Conference on September 10. Open-market insider buying is rare in this group, where the flow has run heavily the other way.

Red Cat Holdings (RCAT) had a quiet week, trading between $7.99 and $8.22 through September 11 and sitting down roughly 28% over the trailing twelve months, with no new award following the Havoc maritime autonomy partnership. **Kratos Defense (KTOS)** also went without a new disclosure inside the week after announcing a contract worth more than $20 million on September 1 for mobile SATCOM gateways serving an Asian defense customer. Both names remain levered to the same low-cost, high-volume procurement shift the Air Force and Navy solicitations describe.

AeroVironment posting a record $1.5 billion funded backlog on a 1.4 book to bill, with the stock still 62% below last October’s high.
Canada pledging to go from 2,000 military drones to an industrial base that can produce millions in two years, with a third of new production permanently routed to Ukraine.
A drone incursion over the San Diego control tower costing 400 flights, against roughly 60 certified counter-drone officers nationwide and 18,500 agencies that need them.
The Air Force skipping the feasibility phase entirely to buy cargo planes that launch AI-controlled swarms. The Navy trading stealth for unit cost on a carrier drone before it has picked a vendor.
Iran seizing a $2.5 million American undersea drone and the Pentagon calling it broken.
Russia fielding a 90 kilogram, 600 kilometer per hour attack drone built around a Chinese jet engine.

Capacity is the binding constraint in every one of those stories. Demand was settled two years ago, and this was the week the sector showed how much it still cannot build, certify or crew fast enough to meet it.

$DRNZ, the REX Drone ETF, seeks to track the VettaFi Drone Index, providing exposure across the full drone ecosystem: combat, surveillance, logistics, commercial, and counter-drone.

An investor should carefully consider a Fund’s investment objective, risks, charges, and expenses before investing. A Fund’s prospectus and summary prospectus contain this and other information about the REX Shares. To obtain a Fund’s prospectus and summary prospectus call 844-802-4004 or visit rexshares.com. Read prospectuses carefully before investing.

Investing in the Funds involves a high degree of risk. As with any investment, there is a risk that you could lose all or a portion of your investment in the Funds.

The Fund, Trust, Adviser, and Sub-Adviser are not affiliated with the Fund’s underlying securities.

Funds distributed by Foreside Fund Services, LLC, member FINRA.

Directed energy stopped being a science project this week. The Army awarded AeroVironment $464.8 million to produce 30-kilowatt LOCUST lasers, the first time the U.S. military has ever bought a laser weapon in production rather than as a prototype, and the Pentagon reported that drone activity on the southern border has fallen 75% since laser systems arrived. That is the counter-UAS story finally showing a return. The procurement story is messier. Tariffs of up to 100% on imported drones went live September 3, and the domestic names that were supposed to benefit sold off. Meanwhile the Air Force is racing to field cheap drones after heavy MQ-9 losses in Iran, lawmakers want to know why the Army dissolved the one unit built around Ukraine’s drone lessons, and Germany began building strike drones for Kyiv at scale.

Here’s the breakdown:

AeroVironment was awarded a $464.8 million U.S. Army contract on September 2 under the Enduring High Energy Laser program for its LOCUST family of laser weapons. The award is the first production procurement of a directed energy weapon in U.S. military history, moving lasers out of the prototype pipeline where they have lived for two decades. AeroVironment will deliver dozens of 30-kilowatt LOCUST X3 counter-UAS systems over the next few years, integrate them onto platforms including the Joint Light Tactical Vehicle, and supply sustainment and training. The program builds on AMP-HEL prototype work and testing at White Sands Missile Range.

Five days later the company disclosed its first international LOCUST order, a direct commercial sale valued at more than $50 million covering an initial delivery of systems and support. AeroVironment is putting more than $30 million into expanding its Albuquerque manufacturing campus to meet the demand, adding more than 450 jobs. The company puts the cost of a LOCUST engagement at less than $10 per shot.

That $10 figure is the entire argument. A counter-drone interceptor missile costs six figures. A fighter sortie to shoot down a Shahed costs more than the Shahed. Every counter-UAS conversation for three years has circled the same problem, which is that the defender is spending more per engagement than the attacker, and no defense budget survives that math at scale. Lasers invert it. The magazine is electrical power, the marginal cost per shot rounds to nothing, and the constraint moves from inventory to generation and cooling. Confirmation showed up on the border this week: the military reported drone activity across the U.S.-Mexico frontier has dropped roughly 75% since directed energy systems were deployed. This is a behavioral response from actual operators who concluded the crossing was no longer worth attempting, and it is the strongest field evidence the technology has produced.

The Section 232 tariffs went live September 3, with rates reaching 100% on Chinese drones and components and 10% to 15% on products from allied nations. This was the moment the domestic drone industry had been positioning for since the proclamation was signed. The trade did not cooperate. Coverage split within hours, with Investor’s Business Daily reporting drone stocks flying on the news and Barron’s running a piece on why the tariff was not lifting the sector as domestic names sold off. Both were describing the same tape.

The reconciliation is that the tariff was announced weeks ago and priced immediately, so the effective date delivered no new information, while the operational reality underneath got clearer and it is not clean. American manufacturers still buy Chinese parts. Motors, magnets, batteries and camera modules do not have deep domestic supply chains, and a tariff on components raises the input cost for the same U.S. companies the policy is designed to protect. Unusual Machines announced a partnership with Altana on September 3 specifically to automate supplier verification against NDAA and FCC rules and to shorten Blue UAS Framework qualification timelines, which tells you how much friction sits in proving a part is compliant.

The other constituency is public safety. Police and fire departments built their programs on inexpensive Chinese airframes, and their replacement options now cost multiples of what they were paying with procurement cycles measured in quarters. Those agencies are the ones absorbing the transition cost, and their budgets do not flex the way a defense program’s does. None of this changes the medium-term direction, which still favors domestic manufacturers with real production capacity. It does mean the reflexive tariff trade is done and the market has moved on to asking which companies can actually build at volume and at margin.

The Air Force is speeding up a new low-cost drone program in direct response to heavy MQ-9 Reaper losses in the war with Iran, according to reporting published September 4. The service has been losing Reapers to Iranian air defenses at a pace that no peacetime attrition model contemplated, and the aircraft costs roughly $30 million each. ABC News separately reported this week that the U.S. is scrambling to adapt in what it called the country’s first major drone war.

The Reaper was designed for uncontested skies. It is large, slow, expensive and superb at loitering over an adversary with no meaningful air defense. Against a state with layered surface-to-air systems and a mature electronic warfare capability, it is a target that cannot be easily replaced. Iran does not need to win engagements against American air power. It needs to keep the exchange rate favorable, and it has.

What makes this different from the usual lessons-learned exercise is the speed. Acquisition reform in the Air Force is normally measured in program cycles, and the service is instead compressing a low-cost drone effort because the operational demand will not wait for the standard timeline. Eleven countries have asked Ukraine for help with Iranian drone warfare tactics, which is its own signal about where institutional knowledge now sits. The procurement implication is straightforward: budget share is shifting from a small number of exquisite airframes toward large quantities of cheap ones, and the companies positioned for that shift are mostly not the primes that built the Reaper.

Lawmakers pressed Army leadership this week over the decision to terminate a specialized unit’s drone warfare mission, a mission built explicitly around lessons from Ukraine. Members expressed what DefenseScoop characterized as deep concerns and asked the Army to explain the rationale. The reporting landed the same week that Army Secretary Dan Driscoll submitted his resignation.

The unit existed to institutionalize what the Army learned from three years of watching small drones reshape ground combat: FPV attack tactics, electronic warfare countermeasures, rapid iteration on commercial hardware, the entire body of practice that Ukraine developed under fire and that no American formation had a home for. Standing that capability down while the Air Force sprints to field cheap drones and the Army buys lasers to shoot them down is, at minimum, an unusual sequencing choice.

For investors the signal is about institutional friction, not budget direction. The money is moving toward drones and counter-drone at every level of the Pentagon, but the organizational structures that decide what gets bought are still contested, and specific programs get created and killed inside that fight. Congressional attention usually means the decision gets revisited. It also means the Army will be answering questions about small drone doctrine in an appropriations season where its laser and counter-UAS lines are expanding fast.

Germany started mass production of long-range strike drones for Ukraine this week, with reporting indicating an initial run of 5,000 aircraft, while Volodymyr Zelensky said Kyiv is finalizing a broader drone agreement with Berlin. Ukraine has separately told partners it needs $27 billion in additional defense funding for air defense and drones. Russia continues iterating on its own one-way attack systems, with analysts tracking the evolution from Shahed to the domestically produced Geran line and a new generation of jet-powered variants that Ukrainian officials describe as a significantly harder intercept problem.

Germany producing strike drones at scale is a change in the European industrial posture. For two years European support ran through existing inventory and financing, with production staying inside Ukraine. Building the aircraft in Germany means German manufacturing capacity, German supply chains and German industrial jobs are now attached to long-range strike drones, which is far harder to unwind than a funding tranche.

The jet-powered escalation is the part worth tracking. Propeller-driven one-way attack drones fly slow enough that gun systems, interceptor drones and even helicopters can engage them. Jet propulsion changes the closure rate and pushes the defender back toward missiles and directed energy, which is exactly the cost problem the Army is spending $464.8 million to solve. The offense and defense sides of this market are compounding against each other in real time, and both sides of the trade are now funded.

NATO scrambled fighter aircraft on September 1 after drones entered Estonian and Romanian airspace on the same night, with Turkish jets deployed as part of the alliance response over the Baltics. The Kremlin followed with a warning to Baltic states of a devastating response, and NATO’s secretary general described Russia as increasingly reckless. Romania’s prime minister used the incident to push for greater alliance focus on the eastern flank and the Black Sea.

This is the fourth or fifth variation on the same event this year, and the repetition is the point. Cheap drones are testing NATO airspace on a near-weekly cadence, and the alliance keeps answering with fourth-generation fighters. Every one of those intercepts is a demonstration of resolve and a demonstration of an unsustainable cost structure, and Moscow gets to observe both for the price of an airframe that costs less than the fuel burned intercepting it.

European counter-UAS procurement is the fastest-moving line in continental defense spending as a result, and the buying is starting to reflect the lesson. The Netherlands turned to Elbit this week to upgrade its counter-drone system from soft kill jamming to hard kill interception, which is the same progression the U.S. Army just made with lasers. Soft kill is cheap and defeats cooperative targets. Hard kill costs more and works on drones built to ignore jamming. Every European buyer is now working through that upgrade, and the addressable market for hard kill counter-UAS in Europe is expanding faster than the supply base can serve it.

AeroVironment (AVAV) had the most consequential week in the group by a wide margin. The $464.8 million E-HEL production award for 30-kilowatt LOCUST X3 systems is the first directed energy production contract the U.S. military has issued. The follow-on international LOCUST order of more than $50 million arrived days later, establishing that the export market is live and not waiting for the domestic program to mature. AeroVironment also won a NASA Jet Propulsion Laboratory contract to co-design and co-manufacture three autonomous Mars helicopters for the SkyFall mission targeting a November 2028 launch.

Ondas Holdings (ONDS) signed a definitive agreement to acquire Aran Defense, the defense division of Israel’s Aran, for approximately $33 million in cash or stock, roughly 1.3 times expected 2026 revenue. Aran Defense generated about $12 million in revenue in 2024 and $17 million in 2025 and is expected to reach roughly $26 million in 2026 with positive adjusted EBITDA, operating 4,400 square meters of engineering and manufacturing space including CNC machining, classified production and prototyping. The deal adds captive Israeli manufacturing capacity to a company that just booked a multi-million dollar Israeli Ministry of Defense tender for the Digital Bat tactical attack drone program. Ondas is carrying a $757 million pro forma backlog and $1.4 billion in cash against full-year guidance of $525 million to $550 million.

Red Cat (RCAT) spent the week on integration and structure rather than headline awards. The maritime Blue Ops division partnered with Havoc to integrate collaborative autonomy and command-and-control software across multiple uncrewed surface vessels including the Variant 7, with joint operational fleets planned at the two companies’ Rhode Island and Florida sites. The company promoted Mitch McDonald to divisional CEO of its unmanned aircraft operations, unifying Teal Drones and FlightWave under one leader focused on manufacturing scale.

Kratos Defense (KTOS) participated in the defense budget rally and continues to be framed by analysts as the pure-play alternative to the primes in collaborative combat aircraft. The Air Force’s accelerating low-cost drone push is directly aligned with the Valkyrie franchise, and any program that compresses timelines for cheap, attritable jets moves in Kratos’s favor.

Mobix Labs (MOBX) moved further into domestic drone manufacturing as its acquisition of Vision Aerial neared close, with U.S.-made Vulcan drones entering production and the target projecting revenue growth of roughly 93% in 2027. It is a small position in a large trend, and the trend is that every company with a compliant American airframe is now a strategic asset.

A $464.8 million Army award for 30-kilowatt lasers, the first of its kind in US military history, followed by a $50 million international order and a $30 million plant expansion. Drone activity on the southern border down 75% since lasers arrived.
Tariffs live at 100% and the domestic trade selling off anyway, because American manufacturers still buy Chinese parts.
The Air Force compressing a low-cost drone program because Reapers are not surviving Iranian air defenses.
Congress demanding answers on why the Army dissolved the unit built around Ukraine’s drone lessons.
Germany mass producing 5,000 long-range strike drones for Kyiv while Russia fields jet-powered attack drones that are harder to intercept.
NATO scrambling fighters over two member states in a single night.
Ondas buying Israeli manufacturing capacity for $33 million and Unusual Machines growing revenue 687%.

The theme running through all of it is cost per engagement, and this was the week the defense side finally got an answer that pencils.

$DRNZ, the REX Drone ETF, seeks to track the VettaFi Drone Index, providing exposure across the full drone ecosystem: combat, surveillance, logistics, commercial, and counter-drone.

An investor should carefully consider a Fund’s investment objective, risks, charges, and expenses before investing. A Fund’s prospectus and summary prospectus contain this and other information about the REX Shares. To obtain a Fund’s prospectus and summary prospectus call 844-802-4004 or visit rexshares.com. Read prospectuses carefully before investing.

Investing in the Funds involves a high degree of risk. As with any investment, there is a risk that you could lose all or a portion of your investment in the Funds.

The Fund, Trust, Adviser, and Sub-Adviser are not affiliated with the Fund’s underlying securities.

Funds distributed by Foreside Fund Services, LLC, member FINRA.

The drone sector closed August with a striking gap between news flow and price action. Every major name fell, most by high single digits, on a week that delivered an Army Switchblade 600 order, a NASA Mars contract, record DroneShield revenue, and a six-year Taiwanese drone appropriation. Positioning unwound while fundamentals improved. The two forces that will define domestic drone manufacturing moved in opposite directions on the same day: the FAA expanded the program letting a few jurisdictions fly beyond visual line of sight, and Part 108, the rule that would let everyone else, stayed parked at the White House.

Here’s the breakdown:

The tariff proclamation President Trump signed on August 13 takes effect Thursday, September 3, and the structure is steeper than the headline number. Drones over 25 kilograms maximum takeoff weight, drones with thermal imagers, docking stations, and the Annex I critical components all carry a 100% ad valorem duty. Drones at or below 25 kilograms fall into the 25% Annex II bucket, but a thermal imager pulls a small drone back into Annex I at 100%: weight and sensors are not independent tests. A third component tranche follows at 25% on February 9, 2027.

The Commerce Secretary holds levers that matter more than the rate table. Reduced rates cap the EU, Japan, South Korea, Taiwan, Switzerland, and Liechtenstein at 15% and the UK at 10%, but require importer certification that substantially all critical components originate in the U.S. or a qualifying jurisdiction, and Commerce has defined neither the term nor a verification process. Separately, companies building or expanding U.S. production can receive duty-free treatment for covered supply-chain inputs and production equipment in volumes tied to expected U.S. output, provided construction begins before January 20, 2029. Commerce can rescind benefits for failure to meet approved commitments, while retroactive tariff liability is reserved for cases involving fraud or deliberate misrepresentation.

The market has already round-tripped the trade. The Friday after the proclamation, Unusual Machines ran up 22% intraday, Red Cat 8%, and Ondas 4%. By this Friday’s close AeroVironment sat roughly 22% below its August 13 level and Kratos 17% below. The bear case is a supply chain argument, not a demand argument: CSIS puts roughly 90% of global sintered-magnet output in China, which also processes two-thirds of global lithium and more than 70% of graphite anode material. A tariff protecting finished assembly economics does nothing about a bill of materials routed through those chokepoints.

Joint Task Force–Southern Border defeated three hostile, unmanned aircraft over two days in late August, disclosed August 28, using the Army Multi-Purpose High Energy Laser, built by AeroVironment around its 20kW-class LOCUST system. Cartel networks are “increasingly employing unmanned aircraft systems to facilitate illicit human-smuggling and actively spy on our personnel and law enforcement partners,” said task force commander Major General Curtis Taylor. Northern Command declined to say whether the engagements took place over U.S. or Mexican airspace.

This was the first use of the laser against cartel-linked drones on the southern border, and the sequence preceding it explains the delay. In February a CBP laser engagement near El Paso turned out to have targeted Mylar balloons and triggered an FAA airspace closure. On February 25 a LOCUST system near Fort Hancock, Texas mistakenly shot down a CBP drone that had not been coordinated with the military task force. The FAA and the Department of War signed a safety agreement on April 10. The coordination rules had to catch up to the hardware.

The economics here are instructive. A Coyote interceptor runs roughly $100,000 to $125,000 per round, and on August 4 the Army sought a next-generation counter-small UAS missile under $150,000 per round at buys of at least 5,000, because that cost curve runs the wrong direction against an attritable FPV drone Neros sells for around $2,000. Directed energy solves the magazine depth problem kinetic interceptors cannot. AeroVironment delivered its first two AMP-HEL systems in September 2025 and won a three-year IDIQ worth up to $500 million from JIATF-401 in July for Domestic Shield. The border engagement is the clearest validation the laser line has produced to date.

JIATF-401, stood up in late August 2025, held its second summit on August 21 with an unusually candid assessment. “I think we’ve got a ton of work to do,” said director Brigadier General Matt Ross. The numbers behind it are the most useful counter-UAS demand data of the year: more than 1,600 unauthorized drones detected and more than 700 systems seized during the 2026 FIFA World Cup, and roughly 500 state and local officers trained under the new 28 C.F.R. Part 124 framework.

The procurement footprint is already substantial. CACI won a counter-UAS IDIQ worth up to $500 million in July, its SkyValor detect-and-defeat system the first Domestic Shield task order. Kaizen Laboratories built the cuas.mil marketplace on a $15 million award, now supporting Foreign Military Sale fast-lane requests from Australia, Poland, South Korea, Romania, and the UK. Fielded systems include AeroVironment’s Titan and Smart Shooter’s SMASH 2000L and X4. The rule extending detect-and-mitigate authority to state and local police took effect July 1.

Two dates convert this into orders. In December the Pentagon’s research and engineering office runs a directed-energy shoot-off at Dugway Proving Ground with JIATF-401, evaluating commercial laser and high-power microwave prototypes, with successful performers positioned for production orders and pilots designated at Fort Huachuca, Fort Bliss, Naval Base Kitsap, Grand Forks, and Whiteman. Then comes the 2028 Los Angeles Olympics, which the FBI’s Bryan Stevens called “bigger than the World Cup: more venues, more days, more airspace and far more overlapping jurisdictions concentrated in one region.” The World Cup produced 1,600 detections across eleven cities; concentrating that into one metro region is a larger procurement event than anything the task force has contracted.

Taiwan’s Legislative Yuan passed the Act on Strengthening Defense Autonomy and Developing the Unmanned Vehicles Industry on August 27, 60 to 50. The program runs six consecutive years through the end of 2031, capped in principle at NT$40 billion annually, and funds coastal surveillance drones, coastal attack drones, and small suicide unmanned surface vessels, imported models included. NT$240 billion is roughly $7.6 billion.

The politics are the story. The opposition-led bill displaced the Cabinet’s NT$210 billion proposal, which specified roughly 210,000 military drones by 2031, and shifted oversight to the Ministry of Economic Affairs. Defense Minister Wellington Koo objected that the NT$40 billion cap would “prevent Taiwan from effectively building up drone combat capabilities,” noting his ministry alone had planned NT$42.1 billion for next year. The legislature passed a larger headline number and a tighter annual ceiling than the military asked for.

The strategic frame is the “unmanned hellscape” Admiral Samuel Paparo described as INDOPACOM commander in June 2024: thousands of unmanned systems in the Taiwan Strait to buy time early in a contingency. Taiwan is now funding the industrial base to supply it, and the annual cap means six years of predictable demand rather than a lumpy one-time buy. With NATO Allies committing more than $40 billion over five years to counter-drone capabilities and Finland planning joint production with Ukraine, the allied demand curve now runs largely independent of the U.S. budget cycle, which is still in doubt for FY27.

Transportation Secretary Sean Duffy announced on August 27 that the FAA will add up to eight new state, local, tribal, and territorial lead participants to its BEYOND program under Section 920 of the 2024 FAA Reauthorization Act. Proposals are due September 10 through SAM.gov. Phase 2 covers beyond-visual-line-of-sight operations, public safety missions, on-airport operations, and other complex airspace, and reaches larger cargo drones, longer distances, and flights above 400 feet. Phase 1’s eight participants logged 70,563 flights, 48,383 of them beyond visual line of sight.

Part 108, the rule that would normalize BVLOS for everyone outside a federal pilot program, has sat at the Office of Information and Regulatory Affairs since July 10. The initial 90-day window runs to roughly October 8, though OIRA reviews are routinely extended, and the FAA already missed the February 1 deadline set by Executive Order 14307. DOT Chief of Staff Pete Meachum framed the delay as a choice on August 1: “The secretary certainly doesn’t want lock-in protection for incumbents.” He said the published rule will closely track the draft the public has read.

The gap between those two facts is the entire commercial drone investment thesis. The FAA is expanding experimental authority because it cannot yet grant routine authority. Every operator without a BEYOND seat is waiting, and capital formation below the scale of a Zipline or an Amazon stays frozen while it waits. Commercial UAV Expo opens in Las Vegas on Tuesday with 3,700-plus professionals and 240-plus exhibitors, running FAA and EASA sessions on a rule nobody has read.

Zero Zero Robotics launched the HOVERAir Versa on Indiegogo on August 18, a 230-gram modular device marketed as an “intelligent self-flying camera,” with authorization sought on the camera rather than the aircraft. On August 21 the FCC said the certification “was granted erroneously and has been set aside,” removed it from the public database, and directed the company to stop importing, marketing, and selling in the United States: the camera alone is a prohibited foreign-produced UAS critical component, and with the Flight Kit the device is a banned foreign-produced UAS. The campaign had raised more than $230,000 within hours.

The mechanism is FCC action DA 25-1086, released December 22, 2025, which added all foreign-produced unmanned aircraft systems and UAS critical components to the Covered List alongside equipment listed under Section 1709 of the FY2025 NDAA, sweeping in DJI and Autel. Previously authorized models keep flying, and a May 2026 waiver allows software updates until at least January 1, 2029. New authorizations are blocked. DJI’s Ninth Circuit opening brief is due November 2, with proceedings paused pending FCC action on its reconsideration petition.

The revocation matters more than a canceled crowdfunding campaign because it establishes that the Covered List reaches component-level and modular configurations. The “it’s not a drone, it’s a camera with an optional flight accessory” argument is dead, and the FCC is sending guidance to certification bodies to tighten due diligence. The compliance surface is wider than most reshoring stories admit: SiFly CEO Brian Hinman acknowledged the U.S.-built Q12’s motors come from China, because “we need rare earths to make good magnets,” with domestic motors running roughly 3x the cost. Tariff and FCC exposure now stack on the same September 3 timeline.

Motorola Solutions completed its $1.5 billion acquisition of D-Fend Solutions on August 20, eleven weeks after announcing it. D-Fend’s approach is non-kinetic RF cyber-takeover rather than jamming: it identifies a rogue drone, takes control, and lands it in a designated zone, with thousands of deployments across more than 30 countries. Zohar Halachmi stays on as CEO and becomes Motorola’s senior vice president for counter-drone solutions. A public-safety radio company just paid $1.5 billion to sell counter-drone into its municipal customer base, the same year Washington extended counter-UAS authority to those customers and FEMA began obligating $250 million of a $500 million grant program to help pay for it.

Three venture rounds landed the same week and the theme is clear. Mara raised $7 million led by Khosla Ventures for Spike, pairing a detection node with Seeker, a 250-gram tube-launched interceptor flying at 200 kilometers per hour at a system cost below the asset it protects. SiFly raised $20 million led by Shield Capital to scale U.S. production of the Q12. Airbound raised $37 million led by Greenoaks with DoorDash participating, targeting 10,000 autonomous flights per day across a three-city network in Andhra Pradesh. Meanwhile Tonner Drones agreed on August 27 to buy Azur Drones out of Drone Volt’s liquidation in cash, subject to court approval. Distressed European hardware is changing hands at fractions of development cost while defense and delivery platforms raise at premiums. Drone Industry Insights put 77% of 2025’s $3.86 billion in drone funding into dual-use companies, and the weak middle, civil hardware with no defense revenue and no logistics platform, is where the liquidations are happening.

Positive news flow, uniformly negative tape. Five of the six names below fell hard, Draganfly was flat, and the drawdowns ranked in order of beta rather than news.

AeroVironment (AVAV) had the busiest week in the sector and fell 7.7% anyway, closing Friday at $147.94. On August 26 it received a $51 million Army delivery order for Switchblade 600 loitering munitions under its $990 million five-year Lethal Unmanned Systems IDIQ, covering Block 2 systems plus Block 1 units for a foreign military sale. Block 2 adds upgraded avionics, SPOTR AiTR target recognition, resilient communications, and GPS-denied navigation. On August 27 AeroVironment won a contract for three autonomous helicopters for NASA’s SkyFall Mars mission, and on August 24 committed $100 million to a 20-acre Moorpark, California campus consolidating five leased sites. AVAV trades roughly 39% lower year to date, with fiscal Q1 2027 results due after the close September 9.

Kratos (KTOS) fell 9.0% to $52.00, then announced Monday a roughly $35 million national-security hardware production award spanning hypersonics, counter-UAS, air defense, missiles, radars, and directed energy through its C5ISR business; the customer was not disclosed. On August 24 it said it will supply Spartan TDI-J85 engines from Auburn Hills, Michigan for Boeing’s JDAM LR production, following Boeing’s $75 million contract action, and has begun buying long-lead components for a large 2027 run. KTOS is down roughly 32% year to date against a 21-analyst Strong Buy consensus.

DroneShield (ASX: DRO) delivered the week’s only earnings print and got punished for it, closing down roughly 11%. First-half 2026 revenue hit a record A$125.8 million, up 74%, but underlying EBITDA swung to a A$12.4 million loss from an A$8.0 million profit and the statutory loss reached A$32.2 million. The forward book is the number that matters: FY2026 committed revenue of A$240 million as of August 21 against A$176 million a year earlier. Guidance of A$250–270 million was confirmed, with A$180 million of cash and no debt.

Ondas Holdings (ONDS) issued no news after August 18 and fell 9.3% to $7.90. The August fundamentals stand: second-quarter revenue of $83.8 million against $6.3 million a year earlier, roughly $613 million of backlog at June 30 reaching $757 million pro forma, roughly $1.4 billion in cash and short-term investments, and full-year guidance raised to $525–550 million. On August 18 it agreed to acquire Aran Defense for about $33 million, and on August 11 Israel’s Ministry of Defense selected it under the “Digital Bat” tactical attack drone program. Ondas is one of the largest constituents of the VettaFi Drone Index.

ZenaTech (ZENA) was the week’s worst performer at down 15.8%, closing at $1.71, despite completing its ESM Software acquisition on August 25, closing its 28th Drone-as-a-Service acquisition on August 20, and winning 2026 Drone Technology of the Year from the AgTech Breakthrough Awards. Management has positioned the company as a tariff beneficiary. The tape disagreed. Results are due in early September.

Palladyne AI (PDYN) fell 6.0% and said on August 26 it will integrate its SwarmOS autonomy software with NORDA Dynamics’ Underdog module, SwarmOS handling multi-target detection and assignment while Underdog runs precision pursuit through jamming. Second-quarter revenue of $5.8 million ran up 470% year over year against a $24.6 million backlog and reiterated guidance of $24–27 million. Draganfly (DPRO) closed flat, then jumped more than 12% Monday intraday with no news since naming retired Brigadier General AJ Pasagian president of Draganfly Defense USA Operations on August 25: positioning ahead of the tariff date, not company-driven.

A 100% Section 232 tariff going live September 3, with a duty-free input pathway in the Commerce Secretary’s hands and no definition yet of who qualifies.
An AeroVironment laser defeating three cartel-linked drones on the southern border.
JIATF-401 marking a year with 1,600 World Cup detections, 700 systems seized, and a December shoot-off at Dugway.
Taiwan creates a six-year NT$240 billion drone spending framework, overriding its own defense ministry.
The FAA adding up to eight BEYOND participants while Part 108 sits at OIRA.
The FCC setting aside a certification three days after launch.
Motorola closing $1.5 billion for D-Fend.
DroneShield posting 74% revenue growth and A$240 million of committed FY2026 revenue.
AeroVironment winning a $51 million Switchblade order and committing $100 million to manufacturing while the stock fell 7.7%.

This was a week where the contracts, the appropriations, the regulatory architecture, and the operational deployments all advanced at once; yet investors remain skeptical for now.

$DRNZ, the REX Drone ETF, seeks to track the VettaFi Drone Index, providing exposure across the full drone ecosystem: combat, surveillance, logistics, commercial, and counter-drone.

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