Pentagon Lifts Drone Restrictions, Sending Shares of Defense Stocks Higher -- Update

AXON

Published on 07/11/2025 at 10:31, updated on 07/11/2025 at 10:32

By Connor Hart

The Pentagon is going all in on drones, a move that has provided a boost to several defense-technology stocks.

Defense Secretary Pete Hegseth has ordered the removal of any policies that slow down the development and deployment of drones, according to a memo reviewed by The Wall Street Journal.

"I am rescinding restrictive policies that hindered production and limited access to these vital technologies, unleashing the combined potential of American manufacturing and warfighter ingenuity" he said in the memo, sent Thursday and titled "Unleashing U.S. Military Drone Dominance."

The memo builds upon executive orders signed by President Trump last month aimed at easing restrictions on U.S.-made drones and strengthening an industry that has struggled to compete with Chinese competitors.

The Department of Defense plans to boost what it called a nascent U.S. drone manufacturing base by approving hundreds of American-made products for military purchase.

The order is expected to deliver a lift to defense-technology companies specializing in drones and unmanned aerial vehicles. Truist analysts said the memo is likely to result in a continued inflow of capital to private defense companies, though they noted an expectation that publicly traded names would rise on the disclosure.

Shares of Kratos Defense & Security Solutions were trading 7.6% higher Friday morning, at $49.79. Red Cat Holdings's stock price was up 17%, to $7.91, while Unusual Machines' climbed 15%, to $10.03. Shares of ZenaTech rose 11%, to $4.66.

The Pentagon's push in favor of drones reinforces Hegseth's Army Transformation Initiative, which aims to divest from legacy platforms while introducing more unmanned aircraft systems and counter-UAS capabilities, the analysts said.

Morgan Stanley analysts noted that the adoption of drones in public safety is poised for takeoff, and that it represents a substantial market opportunity. They note that Axon Enterprise has previously clocked the total addressable market for drones in the sector at about $20 billion.

"Regulatory hurdles, a critical limiter of adoption in law enforcement and commercial use cases, are rapidly easing, paving the way for broader adoption," the analysts said. "More broadly, we expect formalized regulatory frameworks to catalyze adoption across aerospace and defense and commercial use cases, which are significantly larger in scope."

Under its plan, the Department of Defense intends to arm combat units with a range of low-cost drones developed by American engineers and artificial-intelligence experts, according to the memo. Drones are additionally expected to be fully integrated into combat training by next year.

"We'll train as we expect to fight," Hegseth wrote.

Write to Connor Hart at [email protected]

(END) Dow Jones Newswires

07-11-25 1030ET