We start with the machine itself — what it consists of, what it costs part by part, who buys it and how — then move to stocks read through an EL7 score. The conclusion is that the layer making the aircraft is the least profitable in the chain, and that the best investment exposure to this industry comes either through a peripheral business within a giant company or through a company that is not listed at all.
This research is written to be read from the beginning. The first two sections explain the industry from scratch: what a drone physically is, what makes up its bill of materials, who buys it and by what mechanism. Anyone who stops at the end of the second section will understand the industry, even without reading a word about stocks.
The first structural fact: this is a two-tier industry, not one industry. At the low-cost end, an first-person-view (FPV) aircraft is assembled from off-the-shelf commercial components at a cost of 169 to 235 dollars for the economy category — and one practical build costs 196 dollars. At the other end, the US Department of Defense buys Switchblade 600 loitering munitions at 170,000 dollars per unit. Using a ready field-unit price of 400 dollars — the midpoint of the observed range in Ukraine — the per-unit price gap is 425 times.
The second structural fact, which governs every discussion of stocks. Profit in this chain does not sit in the machine layer. We measured margins from our data: Palantir, which sells the software layer, delivers a gross margin of 84.8% and an operating margin of 42.8%; while Red Cat, which makes the aircraft itself, delivers a gross margin of 9.7% and an operating margin of −150.2%. In other words, aircraft hardware barely covers its materials bill.
As for market size, the only measured figure is the budget figure. The US Department of Defense requested 13.4 billion dollars for autonomy and autonomous systems in fiscal year 2026 — a request, not approved spending — within a total ceiling for which the department requested 961.6 billion dollars and Congress granted 839.2 billion, a shortfall of 12.7%. Estimates by market-research houses differ on the current market size itself by 1.86 times — and both studies are behind paywalls with no published methodology.
When we apply the EL7 score to the sector, our model says the same thing — and it knows nothing about drones. The factor axes of pure-play stocks carry one signature: growth near the maximum and quality near the minimum. Red Cat: growth 93 and quality 10; Ondas: growth 99 and quality 5; Kratos: growth 89 and quality 19; AeroVironment: growth 80 and quality 20. The giant companies reverse the signal entirely.
The sole exception is Palantir, and it proves the rule. Its overall score is 94.1, with growth of 98, quality of 95 and safety of 97 — because it is the only name to have turned this wave into actual profits, with net profit of 49.0%. Its valuation axis is 6 out of 100: the market knows this perfectly well.
The clearest test of this industry will come in the months ahead. Red Cat confirmed guidance for revenue of 150–180 million dollars in fiscal year 2026, while it generated only 35.66 million dollars in its first half. That means the second half must deliver between 3.21 and 4.05 times the entire first half. The company carries a market value of 1.5 billion dollars on trailing twelve-month revenue of 72 million dollars.
A free account gives you 4 full research papers every month. Or subscribe to EL7 Pro for full access to more than 300 papers.
$700 per year · or $99 per month