The Drone Market This Week: The Pentagon Weighs Buying In, a $50 Billion Autonomy Budget, and 600 Drones Over Kyiv

On May 28, the Wall Street Journal reported that the Trump administration is in talks to take direct equity and debt positions in U.S. drone manufacturers, with the Pentagon’s Office of Strategic Capital leading the negotiations. The companies named as candidates are Neros Technologies, the Sequoia-backed FPV maker that has raised more than $120 million and whose Archer drone is already in the hands of deploying Marines; Performance Drone Works, which has raised close to $200 million and holds an Army reconnaissance-drone contract; and Unusual Machines, the publicly traded parts maker. The stated goal is to expand domestic production and drive the per-unit cost of an attack drone down toward roughly $5,000. The structure could combine loans and equity, which would mean Washington taking an ownership position, not just writing a purchase order.

The Office of Strategic Capital was built to fund companies considered critical to national-security supply chains, and the drone push is tied directly to the Drone Dominance Program, a “presidential priority” inside Trump’s $1.5 trillion FY2027 defense budget request that targets 300,000 affordable attack drones by the end of 2027. The reason the talks are happening is capacity. The U.S. built on the order of 100,000 small drones in 2025 against a Ukrainian production base running at roughly 4 million a year, and the domestic supply chain remains thin and dependent on Chinese inputs, with China controlling an estimated 98 percent of rare-earth magnet manufacturing.

This is a different kind of demand signal than the sector has been pricing. For two years the thesis rested on the Pentagon as the anchor customer. Equity stakes would make it the anchor capital provider as well, on the model of the government’s recent positions in Intel and MP Materials. Washington has effectively decided the domestic drone base is too strategically important to leave to the market’s funding timeline. The talks are pre-decisional and unsigned, and the Unusual Machines connection to Donald Trump Jr., a shareholder and advisory-board member, will draw congressional scrutiny if a deal closes. But the direction is unmistakable. The government wants the industrial base built, and it is now willing to put public capital directly on the line to get there.

Between May 23 and May 26, the Department of War released the expanded vendor list for “Gauntlet 2,” the Phase II qualifying event of the Drone Dominance Program. Forty-eight companies fielding roughly 78 unique small drone designs will compete, far above the 18 vendors originally planned. The fly-off runs June 8–20, 2026 at Camp Grayling, home of Michigan’s National All-Domain Warfighting Center. The list spans returning Gauntlet I winners and a deep bench of new entrants, including Neros, Auterion, Griffon Aerospace, XTEND, ModalAI, Teal, Draganfly, and AeroVironment.

The competition splits into two mission profiles: long-range strike at distances beyond 12 miles, and close-quarters work for urban, interior, and subterranean environments. Roughly ten vendors per profile are expected to advance out of the June event, and reported per-unit price ceilings run about $5,500 for the long-range designs and $4,500 for the close-quarters ones. Phase II carries at least $300 million in prototype delivery orders toward an initial tranche of 30,000 drones, one slice of the $1.1 billion, four-phase, 300,000-drone program structured under the Pentagon’s other-transaction authority.

Gauntlet 2 is the funnel through which dozens of small and mid-sized makers turn prototypes into production orders, and the shape of the field tells the story. A vendor pool that ballooned from 18 to 48 in a single phase is evidence the domestic supply base is broader and hungrier than the headline capacity numbers suggest. The price ceilings are the cost-asymmetry doctrine written into the contract terms. And the absence of the legacy primes from the airframe list is conspicuous. Boeing, Lockheed, and RTX are not on it. The small-drone insurgents own this competition, which is exactly why the government is now considering taking equity in them.

On May 28, Defense One detailed how the Pentagon intends to spend the roughly $50 billion in its FY27 request tied to autonomous and drone warfare, with deputy undersecretary James Mazol describing a strategy of “buying platforms en masse” by scaling systems that already work rather than financing new development from scratch. The number is staggering in context. The Defense Autonomous Warfare Group, the office at the center of the effort, spent $225.9 million in FY26. The FY27 request lands near $54.6 billion, more than 200 times the prior year, with about $1 billion in the base budget and roughly $53 billion routed through a five-year reconciliation pot. Secretary Pete Hegseth has separately signaled up to $74 billion in unmanned air and surface procurement across the request.

The policy framework is straining to keep up. At a May 20 hearing of the Senate Emerging Threats and Capabilities Subcommittee, Senators Joni Ernst and Elissa Slotkin pressed Under Secretary for Research and Engineering Emil Michael that AI-driven targeting fused with autonomous munitions is outpacing DoD Directive 3000.09, the 2023 rule requiring “appropriate levels of human judgment” over the use of force. The Autonomous Warfare Group operates as a software and orchestration pathfinder, embedded with private technology firms rather than structured as a traditional program office.

The magnitude is the story. A line item that goes from $226 million to more than $50 billion in a single budget cycle is not a normal procurement ramp. It is a national reprioritization, and the “scale what already works” philosophy tells you who captures it: makers with production lines and fielded systems, not research shops with slide decks. The 3000.09 debate is the regulatory variable sitting underneath all of it. The doctrine is being written in budget dollars faster than the rules governing autonomy can be rewritten to match, and that gap is where the next two years of policy fights will play out.

On May 27, U.S. Special Operations Command selected NASA’s Stennis Space Center on the Mississippi Gulf Coast as the site for a new Autonomous Warfare Proving Ground, a facility to integrate, test, and employ unmanned systems across air, sea, and ground domains. The effort executes SOCOM’s tasking under the Drone Dominance directive and the “Unleashing American Drone Dominance” executive order, with the command’s Joint Acquisition Task Force and SOFWERX running the program. The timeline is already set: a vendor collaboration event in mid-July, with a registration deadline of June 24, capability submissions from mid-September to mid-October, and a final pitch event at SOFWERX in Tampa.

A proving ground is different from a demonstration. It is persistent infrastructure built to put production-representative systems through integration and operational evaluation across domains on a continuous basis, rather than gathering vendors for a one-time showcase. Stennis extends the momentum from SOF Week earlier in the month and gives the special-operations community a permanent home for the all-domain autonomy work the Pentagon has been describing in doctrine for two years.

You do not stand up a permanent national test facility for a program you expect to wind down. The Stennis selection is a statement that autonomous systems have become a standing acquisition category with their own real estate, their own evaluation cadence, and their own front door for the vendor base. For the companies feeding the Drone Dominance pipeline, it is one more recurring access point. For the sector, it is one more piece of fixed infrastructure betting that the demand is structural rather than cyclical.

Two domestic moves this week showed the counter-drone market moving from authority to deployment. On May 26, the FCC’s Public Safety and Homeland Security Bureau announced that the Department of War had granted Conditional Approval to three more drone systems, Blueflite’s Cobalt 461, Verity AG’s Series 4 indoor system, and Air VEV’s 120C and 060C platforms, exempting them from Covered List restrictions through the end of 2026 and bringing the running allow-list to roughly ten systems. A day later, on May 27, the Texas Department of Public Safety unveiled the first state-level counter-UAS plan for the 2026 FIFA World Cup, protecting matches at AT&T Stadium in Dallas and NRG Stadium in Houston with a $3.2 million slice of the $250 million FY26 FEMA counter-UAS fund.

The Covered List flags communications gear judged an unacceptable national-security risk, and it is steadily pushing foreign hardware, principally DJI and other Chinese systems, out of the U.S. market while the conditional-approval pathway builds a vetted allow-list in its place. The Texas plan leans on RF monitoring, Remote ID, and non-kinetic mitigation, operating under the Safer Skies Act passed in the December 2025 NDAA, which gave state and local law enforcement the authority to detect and disable threatening drones. The first World Cup matches begin June 14. The same week, ParaZero secured full-scale production capacity for its DefendAir net-pod interceptors, sized for thousands of units annually, and Draganfly was selected by the Army’s DEVCOM research lab for a counter-UAS development contract.

The domestic counter-drone story has shifted from legislation to procurement. The Covered List is building a two-tier market in real time, vetted U.S. and allied hardware in, Chinese hardware out, and every batch of approvals decides who gets to keep selling into the country. The World Cup and the broader America250 security buildout are the largest near-term demand drivers, and the Texas deployment is the proof that the detect-and-defeat authority Congress granted in the NDAA is now turning into hardware orders at named venues with dates on the calendar.

Overnight on May 24, Russia launched roughly 600 drones and 90 missiles at Kyiv and the surrounding regions, the largest attack on the capital by number of locations struck in the full-scale war. Ukrainian air defenses shot down or jammed 549 drones and 55 missiles. At least four people were killed nationwide and around 100 injured, roughly 30 residential buildings were damaged or destroyed across every district of the city, and Russia fired its hypersonic Oreshnik missile for only the third time in the war. The barrage used the now-familiar mix of Shahed-type attack drones and decoys designed to saturate radars and drain interceptor stockpiles.

Ukraine answered within days. On May 27, Defense Minister Mykhailo Fedorov announced what he called a “logistics lockdown” of Russian forces, scaling the deep-strike campaign by increasing procurement funding for the most effective drone units and opening large competitive tenders. Over May 26 and 27, Ukrainian strikes hit the Taganrog airbase and its aircraft-repair plant, the Voronezh “Baltimore” bomber base, the Tuapse oil refinery, and the Black Sea Fleet’s naval-aviation headquarters in Sevastopol.

The backdrop is an escalating technology race: Ukrainian military intelligence reports Russia has begun serial production of jet-powered Geran-4 and Geran-5 drones, with capacity that could reach 500 jet drones a month and an ambition to make jets half the Shahed-type fleet, trading volume for speed and survivability against improving defenses.

The 600-drone night is the production story made vivid. Russia can now sustain in a single evening what would have been close to a month’s output two years ago, and it is climbing the technology curve toward faster, harder-to-intercept airframes. Ukraine’s response, funding its best units and running tenders to buy at scale, is the procurement playbook in miniature, and it points at the same conclusion U.S. planners keep arriving at: the side that produces and fields drones fastest wins the air-defense math. This is the demand signal the entire American build-out is responding to, and this week it got louder.

The week’s tape was driven almost entirely by one headline. Wednesday’s report that Washington might take equity stakes in the sector sent nearly every publicly traded drone name sharply higher, with the rally concentrated in the small-cap pure-plays most likely to be on the Office of Strategic Capital’s list.

Unusual Machines (UMAC) was the signature mover. The Journal named it among the companies the Pentagon is pursuing, and the stock surged more than 60 percent on May 28, closing near $29.60 and touching a fresh 52-week high of $32.00 intraday. The reaction sits on top of a Q1 print, reported earlier in May, of roughly $8.1 million in revenue, up about 296 percent year over year, alongside a recent Department of War order for 3,500 drone motors with a path to thousands more components in 2026. The conflict-of-interest angle around Donald Trump Jr.’s shareholding will draw scrutiny, but the near-term catalyst is simple: confirmation and terms of any actual funding arrangement.

AeroVironment (AVAV) rallied roughly 18 percent on the report and added a contract of its own, a $20 million, 39-month award from the Air Force Research Laboratory announced May 28 to advance ceramic and ceramic-matrix-composite materials for hypersonics and thermal protection at Wright-Patterson. The materials work is adjacent to the drone franchises rather than central to them. The Switchblade loitering munitions and the LOCUST counter-UAS line remain the core of the story, and the AV_Halo edge-autonomy expansion earlier this month lines the company up squarely with the capability layer the FY27 budget is now funding. Clear Street’s recent Buy initiation framed the bull case near a $293 price target.

Ondas Holdings (ONDS) was among the biggest beneficiaries of the rally, extending a run that began with its mid-May earnings, when it posted Q1 revenue of $50.1 million, roughly ten times the prior year, and raised full-year guidance to at least $390 million. With around $1.48 billion in cash and investments, Ondas has the balance sheet to keep acquiring against its platform-versus-product thesis. The open question is the quality of earnings, since much of the reported net income came from gains on securities rather than from operations, but the market spent this week pricing the platform narrative, not the footnotes.

Red Cat Holdings (RCAT) climbed double digits across May 27 and 28, recovering the ground it gave up to last week’s $225 million equity offering. The fresh operational item was confirmation that Red Cat completed flight testing of Palantir’s VNav visual-navigation software on the Black Widow, validating flight in GPS-denied conditions, the capability that separates contested-environment drones from commercial hardware. Red Cat also disclosed the acquisition of Quebec’s Quaze Technologies for autonomous wireless-charging technology, extending the platform beyond the airframe.

Kratos Defense (KTOS) rode the report to a roughly 14 percent single-day gain, closing near $65 with the stock up about 75 percent over the trailing year. Kratos did not announce a new standalone award this week, but as the maker of the Valkyrie collaborative-combat drone, carrying a Q1 book-to-bill of 1.6 to 1 on a roughly $2 billion backlog, it sits squarely in the set of names that would benefit if the Office of Strategic Capital widens its circle beyond the small FPV makers.

ZenaTech (ZENA) had the busiest small-cap news flow, gaining about 13 percent on May 28. The company launched ZenaWorx, a LiDAR-and-drone 3D progress-monitoring product aimed at the AI-data-center construction boom, opened a partner program for founder-led defense and AI companies, and kept pushing three ZenaDrone platforms through the cybersecurity phase of DoD Blue UAS certification. The ZenaDrone 2000 heavy-lift interceptor remains the counter-drone catalyst, with flight testing targeted for the third quarter.

The throughline this week is that the United States has decided its drone industrial base is too important to leave to the market’s timeline, and it is now putting public capital, public infrastructure, and tens of billions of budget dollars directly behind it.

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