Drone ETF Report | May 2026

Drone ETF – Key Takeaways

US Military Pushes for Boost in 2027 on Drones and Counter Drones – As part of the US Department of War push to boost defence spending to $1.5 trillion in the 2027 budget, the Pentagon wants to triple spending on drones and related technology to more than $74 billion and invest over $30 billion into more critical munitions, including missile interceptors, whose stockpiles have become critically low during the Iran war. This new spending blueprint was developed prior to the conflict in the Middle East, but a heavy investment in drone warfare has certainly been supported by recent war engagements. The new budget would allocate nearly $54 billion for military drones and related technology, as well as $21 billion for weapons systems designed to take down enemy drones. Drones and other unmanned vehicles have emerged as a key weapon in the wars in Ukraine and Iran, and top Pentagon officials say the U.S. must significantly increase its funding of both drones and counter-drone systems. “Drone warfare is rapidly reshaping the modern battlefield,” Jules Hurst III, acting undersecretary of defence and the Pentagon’s controller said on 21st April. “This budget is the largest investment in drone warfare and counter drone technology in U.S. history”.[1]

EU and Ukraine Form Drone Alliance – The European Union and Ukraine will form a joint alliance dedicated to the development of unmanned aerial vehicles and countermeasures against them. Toward this end, the European Commission has announced a call for expressions of interest in becoming founding members of this alliance. The goal of the alliance is to strengthen the security and defence of the EU and Ukraine by developing an innovative industrial ecosystem for defence UAVs. Applications from interested parties will be accepted until 25th May 2026.[2]

France Ramps Up Spending on Drones – France plans an additional €36 billion ($42 billion) defence spending increase over five years starting 2026, aiming to strengthen military readiness amid global instability. As part of that spending plan, €2 billion allocated for drone capabilities and €8.5 billion for expanding ammunition stockpiles to address rapid depletion in conflicts like Ukraine. Recent conflicts, including the war in Ukraine and fighting across the Middle East, have highlighted how quickly stockpiles of munitions can be depleted during sustained combat operations. These lessons have prompted European governments to accelerate investments in defence readiness. Under France’s updated framework, defence spending is projected to reach 2.5% of GDP by 2030.[3]

Merops Interceptor Drones Proving to be Cost-Effective, Efficient Defence in Iran – Merops interceptor drones have proven to be a cost-effective and efficient defence against Iranian Shahed long-range kamikaze drones, protecting U.S. troops and equipment during the Iran conflict. Their success in Ukraine and streamlined acquisition process suggest a growing role for such low-cost solutions in future military strategies. The Merops interceptor drones, initially used in Ukraine, have been deployed to protect U.S. troops from Iranian Shahed-136 munitions. The drones offer a cost-effective solution against expensive threats. Each Merops drone costs about $15,000, significantly less than the $30,000 to $50,000 Shaheds they intercept, offering a favourable cost ratio. There is also the potential for further cost reduction with larger orders. Prices could drop to $3,000 to $5,000 per unit with increased production, making them even more economical. The Army’s re-organisation of its acquisition process allowed for quick deployment of Merops drones in conflict zones. Merops drones are part of a layered defence strategy. While not as advanced as Patriot missiles, Merops drones can be deployed in large numbers for effective area coverage.[4]

Ondas-Mistral Combo Sees $457 Million Order Backlog – Ondas Holdings demonstrated its newly merged Mistral defence business at a military symposium in Washington DC. The Ondas-Mistral combination, a $175 million all-stock deal that closed earlier in April,[5] added $264 million in contracted backlog to the parent and lifted Ondas’s pro forma backlog to $457 million as of 31st March.[6] The deal also gave Ondas direct access to U.S. Army and Special Operations contract vehicles, including Mistral’s $982 million Army Lethal Unmanned System IDIQ and a $73.6 million U.S. Special Operations Command program.[7] Mistral arrived at Modern Day Marine pitching battlefield-ready tactical UAS and counter-UAS hardware for unit-level deployment. The combined company now offers a Nottingham, Maryland integration facility, a 90,000-square-foot Drone Factory in Huntsville, Alabama, and the Optimus platform on the Defence Contract Management Agency’s Blue List of NDAA-compliant approved systems. The company’s structural pivot from a wireless networking specialist to a Tier-1 defence prime contractor with onshore manufacturing happened in roughly forty-five days.

Aevex Aerospace IPOs on NYSE – Aevex Aerospace listed on the New York Stock Exchange under the ticker AVEX on April 17th. Aevex raised $320 million in its market debut, selling 16 million shares at $20 each. Aevex is a defence technology manufacturer that provides airborne intelligence, surveillance, and other offerings to the U.S. government and its allied forces, including the Department of War, Special Operations Forces, the Intelligence Community, and international partners. It is the manufacturer of Phoenix Ghost, the loitering munition, kamikaze drone, the U.S. has been supplying to Ukraine since 2022. The company derives roughly 78% of revenue from U.S. government contracts. The market is trying to distinguish between drone companies that ship combat-proven hardware from drone companies that pitch combat-proven autonomy stacks. The capital flow is decisively going toward combat-proven hardware and AEVEX is the cleanest, small-cap expression of that thesis to go public this year. The Aevex listing also offers up comparative peer pricing for other drone IPOs in the queue.[8]

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Macro Outlook – Spending on drones rises on lessons learnt from Ukraine and Iran

The US Department of War has increased its spending from $225 million to $55 billion on “drone dominance” in its fiscal year 2027 budget as battlefield conflicts in the Middle East and Ukraine have exposed the growing problem of cheap drones able to overwhelm costly US equipment. This huge allocation signals a major shift in modern warfare, accelerating the move toward autonomous, lower cost, AI-enabled systems.  In recent confrontations in the Middle East, Iranian drone and missile attacks have forced the U.S. and allied defences to respond to waves of low-cost aerial threats, exposing what defence officials describe as a growing „math problem“, firing expensive interceptors like Patriot missiles at far cheaper drones. Layered defences now include a mix of traditional interceptors, electronic warfare tools and emerging systems such as interceptor drones, aimed at addressing the cost imbalance exposed by recent conflicts. The US is not the only country spending on drone warfare. Ukraine, the Netherlands, Lithuania, and Australia are among other countries allocating to drone spending. [9]

  • Ukraine will direct the first tranche of the EU’s €90 billion support package toward more drone production, higher in priority than energy security. Ukrainian officials increasingly frame drone production not as a supporting capability but as a decisive factor in sustaining combat operations and shaping the course of the war.[10]
  • The Netherlands plans to spend 248 million euros on producing drones for Ukraine as well. The ​drones will ​be ⁠manufactured in the Netherlands and Ukraine.[11]
  • Lithuania has committed significant funding towards expanding its UAV capabilities, with more than $54 million already spent and substantial additional investment planned through to 2029. Alongside domestic procurement, the country has also acquired various drones to support Ukraine.[12]
  • Australia has announced $5 billion in new spending on drones, learning from lessons from Ukraine and Iran. Billions of dollars in new or redirected funding will go into drones and counter-drone measures over the next 10 years. The Aussie government says the conflicts in Ukraine and the Middle East have highlighted the increasing role of drones in warfare. Funding will go towards large uncrewed systems such as the Ghost Bat and the Ghost Shark, as well as the development of smaller, cheaper drones. A significant injection of new funds will go into smaller drones with at least $2.2 billion to be spent on developing smaller, lower-cost options.[13]

[1] https://apnews.com/article/pentagon-budget-drones-air-defenses-iran-war-ad774d2d427b70d09752ddfba277a42a

[2] Source: Militarnyi

[3] https://www.msn.com/en-us/news/world/france-ramps-up-defense-spending-with-focus-on-drones-ammunition/ar-AA20pzeB?uxmode=ruby&apiversion=v2&domshim=1&noservercache=1&noservertelemetry=1&batchservertelemetry=1&renderwebcomponents=1&wcseo=1

[4] https://www.twz.com/land/cheap-interceptor-drones-proven-in-ukraine-protected-u-s-troops-against-iranian-shaheds

[5] https://www.insidermonkey.com/blog/ondas-onds-closes-its-175-million-acquisition-of-mistral-inc-1751942/

[6] https://ir.ondas.com/press-releases/detail/304/ondas-completes-merger-of-u-s-defense-prime-contractor

[7] https://uvisionuav.com/mistral-inc-and-uvision-inc-secure-a-982-million-multi-yearidiq-contract-with-the-u-s-army-for-hero-120-loitering-munition-system/

[8] https://www.msn.com/en-us/money/companies/avex-stock-surges-11-overnight-retail-cheers-strong-post-ipo-momentum-as-us-iran-tensions-add-to-the-lift/ar-AA21mEzk?ocid=finance-verthp-feeds&apiversion=v2&domshim=1&noservercache=1&noservertelemetry=1&batchservertelemetry=1&renderwebcomponents=1&wcseo=1

[9] https://www.foxnews.com/politics/pentagon-jumps-from-225m-55b-drones-cheap-attacks-overwhelm-us-defenses

[10] https://euromaidanpress.com/2026/04/26/ukraine-to-prioritise-drones-and-energy-security-in-90b-eu-funding-zelenskyy/

[11] https://www.reuters.com/world/netherlands-spend-nearly-300-million-euros-drones-ukraine-2026-04-15/

[12] https://www.shephardmedia.com/news/air-warfare/lithuanian-air-focus-majority-of-235-million-drone-investment-spent-2030/

[13] https://www.abc.net.au/news/2026-04-14/australian-defence-drone-spending-ukraine-iran-lessons/106560648

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