Unleashing American Drone Dominance: A New Era

1. Universal Machines Inc. is a billboard sponsor of Streetwise Reports and pays SWR a monthly sponsorship fee between US$4,000 and US$5,000.
2. As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Universal Machines Inc., Red Cat Holdings Inc., and Mobilicom Ltd.
3. Steve Sobek wrote this article for Streetwise Reports LLC and provides services to Streetwise Reports as an employee.
4. This article does not constitute investment advice and is not a solicitation for any investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Each reader is encouraged to consult with his or her personal financial adviser and perform their own comprehensive investment research. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company. 

For additional disclosures, please click here.

Last week, U.S. Secretary of Defense Pete Hegseth stood before the Pentagon for a video posted on X announcing a directive to increase the country's arsenal of unmanned aerial systems.

The initiative aims to fulfill an executing order issued by President Donald Trump to achieve "American drone dominance."

In the video, a drone delivers a memo to Hegseth, who appears to sign it.

"While our adversaries have produced millions of cheap drones, . . .  we were mired in bureaucratic red tape. Not anymore," Hegseth said. "In June, President Trump issued an executive order unleashing American drone dominance to bolster our drone industry and arm our warfighters."

The Trump administration's recent executive order, titled "Unleashing American Drone Dominance," primarily emphasizes the civilian applications of unmanned aircraft, yet it also includes several clauses that could significantly impact the Pentagon and military operations, reported Brandi Vincent for DefenseScoop on July 8.

Trump stated in the directive, "The Department of Defense must be able to procure, integrate, and train using low-cost, high-performing drones manufactured in the United States."

The order comes at a crucial time when autonomous systems are increasingly pivotal on modern battlefields. Despite substantial investments, all branches of the U.S. military face substantial hurdles in adopting and deploying diverse, cost-effective drones on a large scale.

"At first glance, the EO (executive order) is directionally sound — it signals a strategic interest in accelerating the adoption of commercial unmanned aerial systems in the U.S. and reducing barriers to their use, particularly for testing and training," Lauren Kahn, senior research analyst at Georgetown University’s Center for Security and Emerging Technology told Vincent.

David Rothzeid of Shield Capital, an Air Force reservist and alum of the Defense Innovation Unit, shared a similar view, noting, "It sends a meaningful demand signal to American entrepreneurs and primes the broader market to accelerate development."

The order also directs the Department of Defense and military leadership to identify programs that could be more cost-efficient or lethal if drones replaced current systems, Vincent wrote. They are required to report their findings to the president within 90 days of the order's publication.

Tom Adams of DroneShield told Vincent that he views the order as a positive step but notes gaps in the language concerning public safety and critical infrastructure authorities, which he hopes will be addressed by formal legislation. Rothzeid emphasized the importance of expanding the Blue UAS list and updating it more frequently with approved industry-made capabilities to foster innovation.

China Still Primary Maker of Essential Parts

The worldwide market for drone components is poised for robust growth, with an anticipated compound annual growth rate (CAGR) of 11.4% through 2028, as per findings from Tech Sci Research. This surge is driven by the broader integration of drones across diverse sectors and the broadening scope of their applications. Currently, North America leads in the consumption of drone components, while China stands out as the primary manufacturer of essential drone parts, according to a study by the Center for Strategic and International Studies. The goal is to be able to source the components from the West.

Focusing on drone motors, North America remains a key player in production, as highlighted in a January report by Future Market Insights. Last year, the region contributed 40%, or US$966.2 million, to the global drone motors market valued at US$2.4 billion, as stated by Cognitive Market Research.

Moving forward to 2032, the drone motors market in North America is projected to grow at a CAGR of 18.7%. Country-specific projections show the U.S. with an estimated CAGR of 18.5%, Canada at 19.5%, and Mexico at 19.2%.

Globally, the drone motors market is expected to expand at a CAGR of 16.8%, potentially reaching a valuation of US$16 billion, according to Cognitive. This growth is propelled by ongoing technological advancements in drone motors and an increasing demand for high-performance motors. These motors are sought after for their ability to provide longer flight durations, superior performance, and durability under extensive operational conditions.

Unusual Machines Inc.

Several companies could be poised to see growth from Trump's order, including Unusual Machines Inc. (UMAC:NYSEAMERICAN), a leader in drone technology and component production.

UMAC recently announced its inclusion in the Russell Microcap Index as of June 30, a milestone that underscores the company's rapid growth and aligns with its strategic objectives to expand operations and enhance manufacturing capabilities within the U.S.

"Being added to the Russell Microcap Index marks an important milestone in our growth journey," stated Allan Evans, CEO of Unusual Machines. "It reflects our increasing market visibility and underscores the strategic steps we're taking to build a robust, U.S.-based foundation for sustained success."

In line with this expansion, Unusual Machines is actively increasing its U.S. workforce, seeking professionals in engineering, operations, and manufacturing.

The company recently expanded its operations by acquiring a 17,000-square-foot drone motor production facility in Orlando, Florida. This acquisition is part of a broader strategy to localize manufacturing, leverage tariff advantages for cost efficiency, and improve control over quality and lead times. Unusual Machines' dual-sourcing strategy will allow it to offer both U.S.-made and globally sourced motor variants, adapting flexibly to meet regulatory demands and evolving customer preferences.

The inclusion in the Russell Microcap Index means that Unusual Machines will automatically be added to applicable growth and value style indexes, which are widely used by institutional investors and index funds. This visibility could attract further investment and support the company's growth initiatives.

The company on Monday announced it had entered into a securities purchase agreement with select investors for the acquisition and sale of 5 million shares of common stock (or equivalent pre-funded warrants) through a registered direct offering priced at US$9.70 per share. Dominari Securities LLC served as the sole placement agent for the offering.

This financing resulted in total gross proceeds of about US$48.5 million from the offering, which is earmarked to purchase drone motor manufacturing equipment, enhance the company's U.S.-based manufacturing capabilities, meet working capital requirements, and address general corporate needs.

Last month, Unusual Machines shifted its acquisition strategy, opting to purchase Rotor Lab in Australia instead of New York-based drone software firm Aloft. This move, according to Litchfield Hills Research Analyst Barry Sine on July 13, is viewed "very positively" as it aligns with the company's focus on core hardware and vertical integration while targeting the burgeoning institutional drone demand. Litchfield has maintained a US$20 per share price target on Unusual Machines, which was trading at about US$8.45 per share at the time of Sine's report, indicating a potential significant upside for investors.

About 11.1% of the company is owned by management and insiders, UMAC said. The rest, 88.9%, is retail.

Unusual Machines has 24.83.1 million common shares. Its market cap is US$288.03 million. Its 52-week high and low share prices are US$23.62 and US$1.28 per share, respectively.

Red Cat Holdings Inc.

Red Cat Holdings Inc. (RCAT:NASDAQ) recently declared its foray into the maritime autonomy sector by adding a new series of unmanned surface vessels (USVs) to its diverse array of systems.

The company describes these USVs as battle-hardened and asserts that they "reinforce its role as a comprehensive provider of interoperable unmanned systems for air, land, and sea operations." This strategic expansion is in direct response to escalating geopolitical tensions and aligns with U.S. defense strategies to bolster American maritime dominance.

These newly introduced USVs boast over 10,000 hours of actual combat experience, are subjected to daily operational testing, and are capable of functioning autonomously or in tandem with manned systems. Red Cat is set to commence production of a seven-meter Expeditionary Multi-Role Craft in the third quarter, designed for high-speed, long-range missions. This vessel will be capable of carrying heavier payloads, providing longer operational endurance, and supporting missions such as deep-strike, anti-ship, and coastal interdiction.

Michael Latimore of Northland Capital Markets recently reaffirmed an Outperform rating on Red Cat, with a price target of US$13. He highlighted the company’s collaboration with a partner that brings established software, AI, and intelligence capabilities, which have notably contributed to significant naval impacts in the Ukraine conflict. Red Cat has also placed bids on substantial contracts.

This expansion is further enhanced by Red Cat's recent integration with Ocean Power Technologies’ WAM-V and PowerBuoy platforms, which have broadened the operational capabilities of Teal-2 drones across air, sea, and subsea domains. With these proven USV technologies and scalable production strategies, Red Cat is well-positioned to meet the critical operational demands of U.S. and allied naval forces.

Ownership data from Refinitiv shows that management and insiders, including CEO Thompson who owns 12.67%, hold just under 14% of Red Cat. Institutional investors account for about 19%, with The Vanguard Group Inc. holding 2.74%, AWM Investment Co. owning 1.8%, and State Street Global Advisers at 2.12%. The remainder is held by retail investors.

Red Cat has 98.42 million outstanding shares and 84.76 million free float traded shares. The company’s market cap stands at US$1.02 billion. Over the past year, its stock has fluctuated between US$0.64 and US$15.27 per share.

Mobilicom Ltd.

Mobilicom Ltd. (MOB:NASDAQ) last month unveiled a cooperation agreement with Palladyne AI Corp., a pioneer in advanced artificial intelligence software for robotic platforms and unmanned systems in both defense and commercial sectors.

Mobilicom is a leader in cybersecurity and robust solutions for drones and robotics.

This partnership will provide customers with a combined offering of Palladyne AI’s Pilot autonomy software for unmanned aerial vehicles (UAVs) and Palladyne’s IQ autonomy software for industrial robots and cobots, integrated with Mobilicom’s OS3 (Operational Security, Safety, and Standards compliance) cybersecurity software.

"We've partnered with Palladyne AI to deliver a powerful software solution that is critical for mission success, whether that be on the battlefield or on the manufacturing line," Mobilicom Chief Executive Officer and Founder Oren Elkayam said. "A unified solution combining the strengths of our platforms will deliver unprecedented autonomous operations securely, protected from hostile threats, even in the most challenging tactical settings. We have already identified a number of our current customers who have expressed interest in putting the capabilities of the bundled product to work."

Palladyne CEO Ben Wolff said, "This collaboration agreement with Mobilicom's OS3 cybersecurity allows both of our companies to offer a highly differentiated, best-in-class bundled secure solution for AI-driven autonomous hardware systems," said Ben Wolff, CEO of Palladyne AI."The combination of products provides enhanced performance and threat protection for both companies' current and prospective customers."

Mobilicom’s OS3 offers cutting-edge cybersecurity for next-generation AI-driven drones through continuous monitoring, detection, alarm, and prevention of threats throughout the entire mission. Its sophisticated multi-layered architecture includes advanced intrusion detection systems (IDS) and intrusion prevention systems (IPS) that prevent tampering, data theft, and unauthorized access in real-time. Designed for complex operations, OS3 ensures continuous resilience through proactive threat detection and automated response while maintaining regulatory compliance.

According to Refinitiv, about 11% of the company is owned by institutions and the rest is retail.

Top shareholders include Bard Associates Inc. with 8.53%, UBS Financial Services Inc. with 0.67%, Morgan Stanley & Co. LLC with 0.63%, Ground Swell Capital LLC with 0.31%, and PFG Investments LLC with 0.24%, Refinitiv said.

Its market cap is US$25.41 million with 7.5 million shares outstanding. It trades in a 52-week range of US$0.85 to US$5.00.