The Drone Market This Week: 25 companies. $1.1 billion on the line. The Pentagon’s Gauntlet fly-off is underway

 In Research

The Pentagon’s Drone Dominance Program Is Now a Live Competition — What Investors Need to Know

The Pentagon’s Drone Dominance Program stopped being a press release this week. It became a competition.

On February 18, 25 companies arrived at Fort Benning, Georgia to begin “The Gauntlet” — a live, operator-driven fly-off that will determine who gets a share of $150 million in prototype orders for low-cost, one-way attack unmanned aerial systems. Military operators are flying and evaluating each system through early March. From there, up to 12 vendors will be selected to deliver 30,000 drones at $5,000 per unit — the opening salvo of a $1.1 billion, four-phase program targeting 340,000 weaponized drones by 2027.

Two names from our portfolio are on the field: Kratos Defense & Security Solutions (KTOS) via its Kratos SRE subsidiary, and Red Cat Holdings (RCAT) via its Teal Drones subsidiary.

As Red Cat CEO Jeff Thompson told Axios: “If you can’t produce them and deliver them on time — if you’re two weeks late — you’re out. It’s all about production. The factory is the weapon.”

The Pentagon isn’t just testing performance. It’s stress-testing supply chains. This is procurement reimagined — iterative cycles measured in months, warfighters evaluating the hardware, and unit costs that must drop to $2,300 by the final phase. It’s the clearest signal yet that the U.S. is done watching Ukraine’s drone war from the sidelines.

Defense Drone Stock Movers This Week

AeroVironment (NASDAQ: AVAV) — ~$275

JPMorgan initiated coverage with an Overweight rating and $320 price target, citing 14% annual growth through 2030 in autonomous systems. CNBC ran it as a headline buy call and the stock gapped up mid-week. Earnings are next up March 10 — consensus expects $483 million in revenue.

Kratos Defense & Security Solutions (NASDAQ: KTOS) — ~$97

All eyes on Monday, February 23, when Kratos reports Q4 and full-year fiscal 2025 results. Street expects $0.16 EPS. Management previously guided 15–20% organic revenue growth for 2026 and projects $1.5–$1.7 billion in revenue. The Gauntlet participation adds a near-term catalyst, though UBS flagged valuation at 86x NTM EV/EBITDA when they initiated at Neutral/$79.

Red Cat Holdings (NASDAQ: RCAT) — ~$12

New Black Widow drone orders from an Asia-Pacific ally, Northland raised its price target to $22, and the Defiance Daily Target 2x Long RCAT ETF (RCAX) launched. Red Cat announced an Innovation Day on February 27 — expect updated long-term targets. Teal Drones is actively competing in the Gauntlet this week.

Palantir Technologies (NYSE: PLTR) — ~$135

Mixed signals. Mizuho upgraded to Outperform with a $195 price target, calling the 25% YTD selloff “unjustifiable.” But Bank of America removed PLTR from its US 1 List, and CEO Alex Karp’s $17 million private jet spend drew scrutiny. Down roughly 35% from the November high of $207 — average analyst target of ~$191 implies 40%+ upside from current levels.

Ondas Holdings (NASDAQ: ONDS) — ~$11

Ondas subsidiary Sentrycs deployed its counter-UAS system with a German state police office and launched the Sentrycs Scout portable product at Enforce Tac. The stock ran +9.5% on February 17 and +6.8% on February 18 on contract momentum. Call volume turned bullish.

Three Regulatory Developments Reshaping the U.S. Drone Market

FAA Part 108 — BVLOS Final Rule Approaching

The FAA is on track to propose its final rule for Beyond Visual Line of Sight (BVLOS) drone operations by March 16, 2026 — reflecting the original 240-day mandate from the June 2025 executive order “Unleashing American Drone Dominance,” adjusted for the 43-day government shutdown.

The proposed Part 108 framework introduces performance-based, risk-scaled regulations — operating permits for lower-risk missions, certificates for complex operations — replacing the current waiver-by-waiver approach. This is the single biggest unlock for commercial drone operations at scale, enabling package delivery, agricultural monitoring, infrastructure inspection, and public safety missions.

SAFER SKIES Act — Counter-Drone Authority Goes Local

Signed into law as part of the FY2026 NDAA, the SAFER SKIES Act grants state, local, tribal, and territorial law enforcement the authority to detect, track, and disable drones posing credible threats at critical infrastructure and major public events — powers previously reserved for federal agencies.

The DOJ and DHS have six months to stand up a national training and certification program. The FBI’s National Counter-UAS Training Center has already begun priority classes for personnel supporting the 2026 FIFA World Cup across 11 U.S. host cities. FEMA has awarded $250 million in C-UAS grants to World Cup host states. This is a direct demand driver for Ondas Holdings (ONDS) and its Sentrycs subsidiary.

Blue UAS List Now at 54 Approved Models

The Defense Contract Management Agency now catalogs 54 drone models on the Blue UAS list — cleared for military use and NDAA-compliant — with 29 receiving “select” designation for operational deployment. Chinese companies still control an estimated 90% of the global commercial drone supply chain, making the Blue List a national security imperative, not just a procurement tool.

Approved portfolio companies include AeroVironment (AVAV), Red Cat Holdings (RCAT), and Kratos Defense (KTOS). Ondas subsidiary American Robotics’ Optimus drone received Blue List approval on January 28.

What to Watch Next Week

  • Kratos Defense (KTOS) Q4 Earnings — February 23: The most anticipated print in the drone sector this quarter
  • Red Cat Holdings (RCAT) Innovation Day — February 27: Updated long-term targets and product roadmap
  • Gauntlet Updates: Early read on which vendors advance to prototype orders
  • AeroVironment (AVAV) CFO at Citizens Tech Fireside Chat — March 2: Livestreamed investor presentation

The Bottom Line

The Gauntlet isn’t just a competition. It’s the starting gun for American drone manufacturing at scale.

Two portfolio companies are already on the field. Three converging regulatory tailwinds are opening the commercial market. And the Blue UAS list is consolidating procurement around a small group of cleared domestic manufacturers.

The policy infrastructure is in place. Now it comes down to who can build, deliver, and scale.

Market commentary, not investment advice. Always do your own due diligence.