| Written by Ryan Hasson 
The global defense landscape has undergone a fundamental transformation over the past decade. High-cost, legacy platforms are increasingly being replaced by autonomous systems, low-cost drone swarms, and AI-integrated intelligence networks. What was once viewed as speculative future technology is now becoming a core pillar of modern defense strategy and industrial growth. Recent conflicts have only accelerated this shift. Modern warfare is increasingly defined by speed, data dominance, and attritable systems that can be deployed at scale. Drones are no longer auxiliary tools; they are frontline assets. From reconnaissance and targeting to electronic warfare and autonomous strike capabilities, unmanned systems are reshaping how militaries operate and allocate capital. This evolution has created a powerful tailwind for a select group of specialized companies operating across drones, autonomous systems, additive manufacturing, and defense-focused connectivity. Rising geopolitical risk, deteriorating global security conditions, and sharply higher defense budgets have only reinforced this trend. Governments are not just increasing spending. They are reallocating budgets toward technologies that can be produced faster, upgraded more easily, and deployed without the financial cost of traditional platforms. For investors, this has translated into sustained momentum across the drone and defense space. While traditional aerospace giants still play a critical role, much of the growth and excitement is occurring among more agile mid- and small-cap players. Companies that are supplying the hardware, software, manufacturing, and data infrastructure behind next-generation defense systems. Below are five drone and defense stocks that have already captured meaningful momentum in 2026 and remain closely tied to the sector’s strongest themes. AeroVironment: A Leader in Unmanned Aircraft Systems AeroVironment (NASDAQ: AVAV) has firmly established itself as one of the most essential pure-play leaders in tactical unmanned aircraft systems. The company specializes in UAS platforms, tactical missiles, and precision loitering munitions. The U.S. Department of Defense, allied militaries, and international partners widely deploy the companies' Raven, Puma, and Switchblade systems. With a market capitalization of nearly $19.6 billion, AeroVironment has already emerged as a heavyweight within the drone space. Shares are up more than 60% year-to-date (YTD), reflecting not only broad sector strength but also confidence in the company’s execution and backlog visibility. Valuation is undeniably elevated, with a forward P/E ratio in the 80s. However, investors are willing to pay a premium for companies operating at the center of structural defense demand. And AeroVironment is no longer a niche supplier; it is scaling rapidly into a diversified defense technology platform. In its recent earnings report on Dec. 9, 2025, the company posted revenue of $472.5 million, up more than 150% year-over-year (YOY) and above analyst expectations. Earnings per share (EPS) missed estimates, highlighting some near-term execution pressure as the company scales. That said, the bigger story came from guidance and backlog. Management raised the low end of full-year fiscal 2026 revenue guidance to $1.95 billion to $2 billion. Even more notably, AeroVironment reported record contract awards totaling $3.5 billion, with approximately 93% of revenue guidance now supported by firm orders. That level of visibility is rare and provides a strong foundation for continued growth. The 2026 narrative for AVAV is all about scale, diversification, and converting backlog into sustainable earnings power. If execution improves alongside revenue growth, the firm's high valuation may ultimately prove defensible. Kratos Defense: A Sector Outperformer Kratos Defense & Security Solutions (NASDAQ: KTOS) has become one of the most polarizing names in the defense sector. Trading at an eye-catching valuation multiple, Kratos is priced more like a high-growth technology platform than a traditional contractor. The stock is already up roughly 72% year-to-date and more than 280% over the past year. Momentum accelerated in early 2026 following renewed discussion around expanding the U.S. defense budget toward $1.5 trillion, with an increasing emphasis on autonomous and unmanned systems. Kratos is uniquely positioned within that shift. The company focuses on unmanned aircraft, satellite communications, missile defense systems, cyber security, and directed-energy weapons. Its drones are designed to be sophisticated enough for combat missions while remaining low-cost and expendable, an increasingly critical requirement in modern conflict scenarios. Beyond drones, Kratos is expanding aggressively into hypersonics. It recently opened a 55,000-square-foot manufacturing facility dedicated to hypersonic systems, broadening its exposure to next-gen missile defense and space applications. While the long-term opportunity is substantial, valuation remains the primary risk. Analysts maintain a Moderate Buy consensus rating, but price targets imply meaningful downside from current levels. That gap underscores the tension between powerful momentum and fundamentals that have yet to catch up. The bull case hinges on Kratos’ ability to convert its technology edge and backlog into high-margin, recurring revenue as programs move from development into standardized deployment. If that transition occurs, today’s valuation may ultimately look more reasonable in hindsight. Velo3D: The New-Age Manufacturing Backbone Velo3D (NASDAQ: VELO) represents a classic “pick-and-shovel” opportunity within the drone and defense ecosystem. Rather than manufacturing drones directly, the company provides advanced metal additive manufacturing systems that enable the production of complex parts and structures at scale. This capability is critical. Modern drones, hypersonic systems, and rocket engines increasingly rely on intricate geometries that cannot be manufactured using traditional methods. Velo3D’s technology enables companies to design for performance without being limited by manufacturing constraints. The stock is up close to 57% year-to-date and is trading less than 10% below its 52-week high. Trading activity has increased notably, with higher volume and wider ranges reflecting growing interest from investors and retail traders. Tangible developments have supported momentum. In January 2026, Velo3D entered into a Cooperative Research & Development Agreement with the U.S. Army to help address critical supply chain challenges through additive manufacturing. Under the agreement, the company will work to qualify complex 3D-printed components for use in military systems. Additionally, SpaceX remains a cornerstone customer. The company already operates 25 Velo3D machines, and management has indicated that further expansion is likely in 2026. As defense and aerospace manufacturing scale, Velo3D sits directly at the intersection of innovation and production capacity. Sidus Space: Orbital Intelligence for the Modern Battlefield Modern drone warfare is only as effective as the data that powers it, and Sidus Space (NASDAQ: SIDU) is positioning itself as a provider of that critical infrastructure. The company operates a space-as-a-service model focused on low-Earth orbit satellites designed to support communications, sensing, and data relay for defense and commercial customers. Sidus remains firmly in speculative territory. With a market capitalization of nearly $219 million and limited current revenue, execution risk is high. However, momentum has been explosive, with shares surging more than 250% over the past month. That move was driven primarily by Sidus’ selection as a contract awardee under the Missile Defense Agency’s SHIELD program, which carries a total contract ceiling of $151 billion. While no task orders have been awarded yet, the designation allows Sidus to compete for contracts tied to AI-enabled sensing and multi-domain defense capabilities. The company also recently raised $16.2 million through an equity offering, strengthening its balance sheet and supporting manufacturing expansion. If Sidus secures even a modest portion of future task orders, it could materially alter the company’s growth trajectory. That upside comes with significant risk, making this a true high-risk, high-reward name. Ondas Holdings: Automating the Defense Interface Ondas Holdings (NASDAQ: ONDS) has emerged as one of the most prominent momentum leaders of the 2026 defense rally. The company develops autonomous systems and secure private wireless networks designed for mission-critical defense, industrial, and infrastructure applications. Shares recently broke out above long-term resistance near $10 and are up nearly 25% YTD, extending gains to more than 450% over the past year. Importantly, recent momentum has been accompanied by improving fundamentals. In mid-January, Ondas released preliminary results showing accelerating revenue growth and an expanding backlog. It now expects full-year revenue of $47.6 million to $49.6 million for 2025 and has raised its 2026 revenue target to $170 million to $180 million. The estimated backlog has surged to $65.3 million, up 180% from November. With backlog growth, guidance increases, and technical momentum aligning, Ondas is transitioning from a speculative breakout into a name investors are beginning to view through a more fundamental lens.  Read This Story Online | 
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