Rising defense demand is buoying drone stocks. Who are the biggest winners?

In 2024, the global drone market was valued at about $73 billion. With a CAGR of roughly 14%, it is expected to reach $84 billion in 2025 and could exceed $160 billion by 2030. The expansion is supported by rapid advances in autonomy, AI integration, and imaging systems, as well as widening adoption of drones in agriculture, logistics, construction, infrastructure inspection, and defense.

According to another forecast, the global commercial drone market will grow to $57.8 billion by 2030, while the combat drone segment could reach $87.6 billion. The surge in the UAV defense market is driven by geopolitical tensions, larger defense budgets, regulatory easing, and wider access to dual-use technologies. Civilian demand is expanding more slowly: low margins and strict regulation weigh on growth, leaving many manufacturers dependent on defense contracts.

To track the sector, analyst Aldiyar Anuarbekov has built a index of combat drone players for Oninvest including defense primes like Lockheed Martin, Northrop Grumman, Raytheon, as well as smaller pure-play drone specialists. The benchmark is calculated in two versions: an equal weight index (UAV EW), and a market-cap-weighted version (UAV CapW).

Since the start of this year, the UAV EW has surged 89.8%, far ahead of both the UAV CapW (plus 42.7%) and the S&P 500 (plus 12.4%). The stronger gains in the UAV EW underline that small- and mid-cap drone stocks have been the main drivers. For the period starting 2018, both versions of the index have shown greater volatility than the broader equity market.

Growth leaders are not limited to the established defense primes. France’s Parrot, once known for consumer quadcopters, exited the hobbyist market in 2021. In the first half of this year, the company reported a 10% revenue increase to EUR33.6 million, with professional microdrones as the main growth engine: their sales rose 20% year over year to EUR18 million, accounting for half of revenue. Parrot’s shares have soared more than 180% this year, the largest single contribution to the UAV EW index.

A similar pivot is underway elsewhere. U.S.-based Skydio and Puerto Rico’s Red Cat have shut down consumer production to focus on military contracts.

The robust demand for defense drones is supported by several factors. NATO and EU countries have ramped up military budgets, highlighted by the EU’s EUR150 billion Security Action for Europe fund for arms procurement launched in May. At the same time, falling component costs and the integration of AI-enabled software have lowered barriers to mass production of smaller, more autonomous drones. Meanwhile, China’s DJI continues to dominate the civilian segment with low-cost products, keeping margins compressed, while regulators in the U.S. and Europe impose tighter operating rules.

Among the strongest performers are Parrot (France), Kratos Defense (U.S.), Saab (Sweden), Leonardo (Italy), Elbit Systems (Israel), and Ondas Holdings (U.S.).

Kratos shares have soared nearly 240% this year, fueled by U.S. government initiatives to modernize the armed forces and loosen export controls on combat drones. Saab has rallied 145%, boosted by Europe’s rearmament and stronger-than-expected second-quarter results. The Swedish group beat operating profit forecasts and raised its organic sales guidance for this year to 16-20% from 12-16%.

Elbit Systems reported second-quarter revenue growth of 21% (the top line of every segment grew), with net income up 60% and a record $23.8 billion backlog. Its stock has risen 92% year to date.

By contrast, the largest U.S. defense contractors have seen more flaccid dynamics. Lockheed Martin’s stock is flat this year, while Northrop Grumman is up 26%. Their slower gains reflect valuations that already price in expected results, especially compared with the outsized rallies of smaller players such as Parrot, Kratos, and Ondas.

Not all companies have shared in the boom. Micro-cap names like Epazz (which makes the ZenaDrone) and AgEagle in the U.S., along with Canada’s ZenaTech, have posted double-digit declines, hurt by commercialization hurdles and reliance on a narrow customer base.

Goldman Sachs, citing a European Commission assessment, highlights drones and counter-drone systems as a core capability gap in Europe’s defense industry. Rising budgets and EU procurement schemes point to sustained multiyear orders for both manufacturers and suppliers.

JPMorgan stresses that the economics of drone warfare are reshaping procurement priorities: intercepting drones often costs far more than the drones themselves. A single U.S. counter-drone system can cost up to $4.3 million, compared with drones priced between $2,000 and $50,000. That disparity favors investment not only in UAV producers, but also in the broader supply chain – electronics, sensors, communications, and software – needed to deliver cheaper, scalable defense solutions.

The AI translation of this story was reviewed by a human editor.