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Thursday's Exclusive News 5 Drone and Defense Stocks Catching Major Momentum in 2026Author: Ryan Hasson. Published: 1/19/2026. 
Key Points - Modern defense is rapidly shifting toward drones, AI, and autonomous systems, driving strong momentum across specialized defense stocks.
- Rising geopolitical risk and expanding defense budgets are accelerating contract awards and backlogs, supporting sustained growth for many small and mid-cap stocks.
- Momentum spans large-, mid-, and small-cap names, offering both scalable industry leaders and high-risk, high-reward opportunities tied to next-generation warfare infrastructure.
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 once seemed like speculative future technology is now a core pillar of modern defense strategy and industrial growth. Recent conflicts have 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. The former CEO of Google calls it the most important thing to happen in 500, maybe 1,000 years of human society. A former U.S. Treasury Secretary says when your great-grandchildren write the history of this period, the political headlines will be the second or third story. The first story is something none of us have seen before. The dot-com collapse, global financial crisis, and COVID-19 pandemic don't compare to what's coming next. We may be entering a period of dramatic, almost unimaginable change. See the full warning and how to prepare now. 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 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, that 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 supply 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 important 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 company's Raven, Puma, and Switchblade systems. With a market capitalization of nearly $19.6 billion, AeroVironment has emerged as a heavyweight within the drone space. Shares are up more than 60% year-to-date (YTD), reflecting broad sector strength as well as confidence in the company's execution and backlog visibility. Valuation is undeniably elevated, with a forward P/E ratio in the 80s. Investors appear 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 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, but 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 $2.0 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 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 premium, Kratos is priced more like a high-growth technology platform than a traditional contractor. The stock is up roughly 72% YTD 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 increasing emphasis on autonomous and unmanned systems. Kratos is well positioned for that shift. The company focuses on unmanned aircraft, satellite communications, missile defense systems, cybersecurity, 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 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 made using traditional methods. Velo3D's technology lets engineers design for performance without being constrained by manufacturing limits. The stock is up close to 57% YTD 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: it already operates 25 Velo3D machines, and management has indicated further expansion is likely in 2026. As defense and aerospace manufacturing scale, Velo3D sits 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 for communications, sensing, and data relay for defense and commercial customers. Sidus remains speculative. With a market capitalization near $219 million and limited current revenue, execution risk is high. However, momentum has been explosive: shares have surged 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 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% since November. With backlog growth, guidance increases, and technical momentum aligning, Ondas appears to be transitioning from a speculative breakout into a company investors are beginning to evaluate on more fundamental terms.
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