US, Ukraine Partnership Could Unleash Massive Defense Contracts, Big Returns

1. Unusual Machines and Sparc AI are billboard sponsors of Streetwise Reports and pay SWR a monthly sponsorship fee between US$3,000 and US$6,000.
2. As of the date of this article, officers, contractors, shareholders, and/or employees of Streetwise Reports LLC (including members of their household) own securities of Unusual Machines, Sparc AI, and Red Cat Holdings.
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1. Ownership and Share Structure Information

The information listed above was updated on the date this article was published and was compiled from information from the company and various other data providers.

2. Disclosure for the quote from the Stewart Thomson article published on February 12, 2026:

1. For the quoted article (published on February 12, 2026), Sparc AI Inc. has paid Street Smart, an affiliate of Streetwise Reports, US$3,500.
2. Author Certification and Compensation: Stewart Thomson was retained and compensated as an independent contractor by Street Smart for writing this article. Mr. Thomson is a retired Canadian financial advisor who has passed the Canadian Securities Course as well as additional technical analysis courses that were mandated by his former employer and approved by Ontario regulatory bodies. For the past 15 years, he has been editing and writing numerous financial newsletters that have a strong focus on charts.  The recommendations and opinions expressed in this content reflect the personal, independent, and objective views of the author regarding any and all of the companies discussed. No part of the compensation received by the author was, is, or will be directly or indirectly tied to the specific recommendations or views expressed.

The U.S. and Ukraine are progressing towards a possible preliminary defense agreement enabling Ukraine to export military technology to the U.S. and collaborate on drone manufacturing through joint ventures with American companies, according to a report by Aidan Stretch for CBS News on May 13.

The draft memorandum was crafted by the U.S. State Department and Ukrainian Ambassador to the U.S., Olha Stefanishyna.

Stefanishyna, in a statement to CBS News, emphasized the strategic partnership between the two nations, stating, "As a result of the work with the Department of State and the Pentagon, a draft framework document has been developed and is currently being reviewed by both sides at different institutional levels."

Over more than four years of intense conflict with Russia, Ukraine has made innovations to drone warfare and contributed to Middle Eastern defense efforts by sending drone interceptors and pilots to assist U.S. allies against Iranian-designed Shahed drones, similar to those used by Russia against Ukrainian targets.

In recent months, Ukraine has expanded its defense collaborations globally, securing agreements with Saudi Arabia, Qatar, and the United Arab Emirates, Stretch noted. Ukrainian President Volodymyr Zelenskyy, in a message on Telegram, noted the broad scope of these partnerships, stating, "Nearly 20 countries are currently involved at various stages: Four agreements have already been signed, and the first contracts under these agreements are now being prepared."

The initiative for cooperation on drones was first proposed by Ukrainian officials to the White House in August 2025, following President Trump's praise of Operation Spiderweb. This operation involved Ukrainian pilots remotely controlling explosive drones from trucks covertly positioned within Russia, successfully targeting and destroying numerous Russian warplanes on their tarmacs. This bold strategy underscored Ukraine's advanced drone capabilities and set the groundwork for further international defense collaborations.

Ukraine Using Drones to Increase Pressure on Russia

In fact, Ukraine carried out one of its largest drone strikes on Russia last weekend, resulting in the deaths of at least four individuals, including three near Moscow, and injuries to a dozen others, according to a May 17 report by The Associated Press. Despite debris falling on the grounds of Moscow's Sheremetyevo, Russia's largest airport, no damage was reported, and flight operations remained unaffected.

Ukrainian President Volodymyr Zelenskyy confirmed the drone strikes, stating they were "entirely justified." This statement comes in the context of ongoing similar attacks by Russia on Ukraine's capital and other cities throughout the war, with an expert suggesting that Ukraine's actions were retaliatory in response to recent Russian assaults on Kyiv.

According to the piece by Stretch, Ukrainian officials have expressed to CBS News that a drone collaboration with the U.S. would be mutually beneficial, particularly as American financing could help both nations boost their defense production capacities. Ukraine's National Security Council has projected a defense production capacity of US$55 billion for 2026. However, to achieve this, Ukraine will require substantial external financing, as it currently only possesses funds to purchase about US$15 billion worth of weapons this year, according to Yuriy Sak, an advisor to Ukraine's Ministry of Strategic Industries.

However, a broader defense agreement that would facilitate more extensive transfer of Ukrainian technology to the U.S. has encountered political obstacles. Ukrainian officials reported a "lack of buy-in" from senior figures within the Department of Defense and the White House, particularly since the onset of the war in Iran. President Trump has publicly dismissed the need for Ukrainian counter-drone technology in the Middle East, stating to Fox News, "We don't need their help in drone defense. We know more about drones than anybody. We have the best drones in the world, actually."

Requests for comments on the potential deal from the White House, the U.S. State Department, and the Ukrainian Embassy in Washington have not yet received responses, and the Pentagon has declined to comment, CBS said.

But the memorandum drafted between Kyiv and Washington on an early-stage drone deal appears to suggest those obstacles may be falling away, Stretch said.

"In addition to the Middle East and the Gulf, the South Caucasus, and Europe, we will soon launch this new security cooperation within the framework of Drone Deals with another part of the world as well," Zelenskyy said in his Telegram post this week, according to CBS. "We are preparing positive news for Ukraine."

'The Year of the Drones'

Patrick Tucker wrote on May 4 in Defense One that defense agencies were evaluating how autonomous systems could be scaled while reducing operator burden. The report discussed efforts focused on enabling autonomous systems to become more intelligent and capable of collaborative operation. It also stated that the Pentagon's Defense Autonomous Warfare Group budget would increase from US$226 million to US$54 billion under a proposed 2027 spending plan.

As part of its ambitious Drone Dominance initiative, the Pentagon has recently announced the winners of its "lethality" challenge, a competition designed to advance the arming of small drones, according to a report by Ashley Roque for Breaking Defense on May 18. The winners, as declared on the competition's website, include Bravo Ordnance, Kela Defense, Kraken Kinetics, Mountain Horse, and Northrop Grumman. These companies have now positioned themselves favorably in the ongoing race to secure contracts for equipping small drones with lethal payloads.

The Lethality Prize Challenge sought innovative payloads for Group 1 drones, which are characterized by their lightweight nature, weighing 20 pounds or less. The challenge emphasized the need for solutions that are scalable and cost-effective, crucial for matching the rapid expansion of Drone Dominance platforms and facilitating mass production and deployment. The Pentagon highlighted that affordability and manufacturability are essential, given that the lethal payload system constitutes a significant portion of the total system cost.

Details about the competition remain sparse as a department spokesperson did not provide further information. However, representatives from two of the winning companies have expressed that this recognition could streamline their paths to securing contracts and certifications.

Northrop Grumman, in a press release, stated that their victory in the challenge designates them as a "preferred" provider, enhancing their role in identifying and scaling advanced payloads suitable for the burgeoning production of small drones. Northrop Grumman plans to deliver its standardized Common UAS Payload, which includes an off-the-shelf fuze and effects module.

According to Seeking Alpha on December 17, 2025, a report by Stifel declared that the defense sector is on a generational precipice, predicting that this year will be "The Year of the Drones."

"2026 is poised to be a critical year for the growth of drones as an industry," a March 30 report on VettaFi noted. "Not only will drones see a bigger role in defense, but they will also benefit from evolving technology and regulatory tailwinds."

Several companies, including those below, are positioned to get a push from those tailwinds, setting up major possibilities for the stocks in 2026.

Unusual Machines Inc.

Florida-based Unusual Machines Inc. (UMAC:NYSEAMERICAN) is a leading manufacturer of NDAA-Compliant drone components and seeks to be a dominant Tier-1 supplier to the fast-growing multi-billion dollar U.S. drone industry.

In 2024, it acquired Fat Shark, a maker of ultra-low latency FPV (first-person view) video goggles, and Rotor Riot, a drone-focused e-commerce marketplace, and has positioned itself to benefit from U.S. legislative shifts — such as the American Security Drone Act — aimed at moving drone supply chains away from Chinese manufacturers. It has also formed a strategic collaboration with Lantronix Inc. to develop autonomous drone components that integrate edge AI with flight control systems.

UMAC reported a significant revenue increase in the first quarter of 2026, with figures reaching approximately US$8.1 million, marking a 296% rise year-over-year. A letter to shareholders by Chief Executive Officer Allan Evans also noted a 65% growth from the fourth quarter of 2025. Evans described the company's rapid growth as "unusual" because it has been achieved without excessively burning through cash. He emphasized that the financial results reflect a broader growth story within a high-demand market.

Despite the impressive revenue figures, the company's net income, which stood at about US$10.3 million (US$0.22 per share), was primarily driven by investment gains, including US$9.5 million in unrealized and US$7.3 million in realized investment gains, rather than operational profits. On an operational basis, Unusual Machines recorded a GAAP operating loss of roughly US$7.3 million, attributed to rapid expansion in headcount and capacity. Evans highlighted that the company grew from 81 employees in the fourth quarter of 2025 to 141 employees by the end of the first quarter of 2026. This expansion has temporarily impacted margins, with gross margins decreasing to 32.8%, though they are expected to recover to about 40% once growth stabilizes.

The company's operating costs for the quarter totaled approximately US$9.9 million, leading to the noted GAAP net operating loss. However, Evans remains optimistic, viewing these costs as necessary investments to scale up in response to future revenue growth opportunities. The rapid expansion has also shifted the company’s operating breakeven point from the previously projected US$30 million to US$40 million in annual revenue to a higher threshold.

Investing.com reported that this marks the eighth consecutive quarter of record revenues since the company went public and that UMAC is also in a strong financial position, with US$223 million in cash following a capital raise.

In a broader context, Litchfield Hills analyst Barry Sine discussed Unusual Machines' progress in reducing reliance on Chinese drone components, a challenge highlighted in a Wall Street Journal article. Sine noted significant advancements in domestic production capabilities, with motor production expected to increase from 20,000 to 120,000 units per month. This scale-up is part of a strategy to develop an integrated subsystem targeted at enterprise and government customers, which includes NDAA-compliant motors, flight controllers, ESCs, and video systems.

Sine projected substantial growth for the company, with enterprise revenue expected to increase from US$27 million in 2026 to US$46 million in 2027, and a significant rise in gross margins from 35% in 2025 to 48% in 2027. Sine has given Unusual Machines a Buy rating with a target price of US$25 per share, indicating a potential 76% return from the current price.

¹As for ownership and share structure, eight strategic entities own about 7% of Unusual Machines, including the CEO, Evans, with 3.33%. About 162 institutions hold 52%, including Vanguard with 3.73%. Retail investors have the rest.

Unusual Machines has 47.79 million shares outstanding. Its market cap is US$690.62 million. Its 52-week range is US$4.67–23.38 per share.

Sparc AI Inc.

Australian company Sparc AI Inc. (SPAI:CSE; SPAIF:OTCQB; 5OVO:Frankfurt) develops GPS-denied navigation and target acquisition solutions for autonomous and dismounted operations, with an AI-powered platform that transforms the inertial sensors already inside commercial drones into precision instruments without requiring additional hardware, external signals, or complex integration.

Its flagship Overwatch platform unifies SPARC's target acquisition, mobile, and navigation systems into a single mission-ready solution.

Sparc AI Inc. has recently announced a strategic partnership with a member of the Ukrainian National Guard who specializes in drone pilot training. This collaboration, detailed in an April 23 release, significantly broadens Sparc AI's distribution network in Ukraine and strengthens the company's direct interaction with frontline operators. This partnership is set to enhance the distribution of Sparc AI's Overwatch platform in Ukraine, complementing existing collaborations with drone manufacturers.

The company outlined its strategy for Ukraine, aiming to establish a comprehensive and resilient distribution network. This involves partnerships with both drone manufacturers and groups that have direct connections with defense end-users. The goal is to deploy the Overwatch platform across various drone platforms and geographic areas, making the software a standard component of the drone ecosystem rather than being restricted to specific airframes or regions.

Sparc AI also announced recently it had formed a new partnership with a Ukrainian drone manufacturer for Overwatch. The collaboration marks a significant step in the commercial adoption of Sparc AI's technology, which specializes in GPS-denied navigation and precision targeting. This partnership is separate from a previous alliance in Ukraine and opens up an additional distribution channel in a region known for its complex electronic warfare environment.

The addition of this new manufacturer not only broadens Sparc AI's installed base but also enriches the operational data collected, which is crucial for enhancing the company's proprietary machine learning models. The strategic goal of Sparc AI is to integrate the Overwatch platform into drone and robotic systems globally, aiming to standardize its use across various platforms. The company emphasized that securing a second independent manufacturer in Ukraine underscores the market demand for its software-centric approach and demonstrates the effectiveness of its distribution model.

The operations in Ukraine are particularly beneficial for Sparc AI as they provide valuable flight data across diverse terrain and electromagnetic conditions, thereby strengthening the capabilities of the Overwatch platform for international clients.

²In a detailed analysis dated February 12, Stewart Thomson reviewed Sparc AI's Overwatch platform, a software system designed to function effectively in environments where GPS may be compromised or unavailable. The platform is tailored for use in drones and robotic systems across various sectors including defense, emergency response, and security. It boasts capabilities such as geolocation, surveillance, tracking, targeting, and autonomous navigation.

Thomson pointed out the vulnerabilities of traditional navigation and targeting systems, such as susceptibility to jamming, spoofing, and signal disruptions. He emphasized that SPARC AI Inc. has developed a method to "replace GPS dependency" by utilizing proprietary algorithms and telemetry-based mathematical models to ascertain location data.

Thomson noted that Overwatch operates purely through software, eliminating the need for additional hardware components like sensors or radar systems. He praised the technology as a "true zero-signature solution" and described it as "covert, resilient, and drone-agnostic," which provides operators with enhanced real-time situational awareness. At the time of Thomson’s analysis, Sparc AI shares were priced at CA$1.18. He set a target price of CA$1.60 and gave the stock a "Speculative Buy" rating, while suggesting that the shares had the potential to reach CA$2. Subsequently, the stock value increased significantly, trading at CA$5.75.

In a separate commentary on April 23, Chen Lin, in his newsletter "What is Chen Buying? What is Chen Selling?", reported that SPARC AI had performed exceptionally well in the U.S. market under the ticker SPAIF, with its value tripling in just the past week. Lin shared that he had issued an alert the previous Thursday, advising purchases when the stock was trading above CA$2. He noted that the stock price had soared to CA$7.50 before experiencing some profit-taking, which brought it back down to the 5+ range. Lin also mentioned his plans to meet with the company’s management in New York the following day, indicating ongoing interest and potential further insights into the company’s operations and prospects.

¹Sparc AI Inc. has a market cap of CA$152.41 million and 25.78 million shares outstanding. The company's 52-week range is CA$0.20-CA$7.50.

Management and insiders own 48% of shares. The remaining shares are Retail.

Red Cat Holdings Inc.

Red Cat Holdings Inc. (RCAT:NASDAQ) is a U.S.-based provider of advanced all-domain drone and robotic solutions for defense and national security. Through its wholly owned subsidiaries Teal Drones and FlightWave Aerospace, it develops American-made hardware and software supporting military, government, and public safety operations across air, land, and sea.

The company designs and manufactures small and tactical unmanned aircraft systems including Black Widow (a short-range reconnaissance war fighter with integrated AI software), TEAL 2 (a blue UAS used by combat soldiers, police, firefighters, wildlife managers, and industrial inspectors), and FANG (a first-person view small UAS), along with the long-endurance, vertical takeoff and landing fixed-wing EDGE 130 designed for extended-range intelligence, surveillance, and reconnaissance missions.

Red Cat is also expanding into the maritime domain through Blue Ops, Inc., delivering uncrewed surface vessels (USVs) for multi-domain mission effectiveness.

In 2025 the company reported revenue of US$40.73 million — a roughly 460% year-over-year increase — and recent guidance targets US$150 million to US$180 million in annual revenue with 30% gross margin, reflecting its rapid growth amid strong defense demand and U.S. policy momentum favoring domestic, NDAA-compliant drone suppliers.

On May 14, the company announced that Kymeta, a leading manufacturer of flat-panel satellite terminals, has joined the Red Cat Futures Initiative. This consortium is dedicated to accelerating the development of advanced autonomous systems for modern warfare. As a key aspect of this partnership, Red Cat's maritime division, Blue Ops, will integrate Kymeta's advanced communications technology into its Variant 7 uncrewed surface vessel (USV).

This integration is crucial for enhancing the capabilities of autonomous maritime operations, enabling the systems to maintain connectivity in remote and dynamic environments. Kymeta is renowned for its resilient connectivity solutions that span GEO, LEO, and MEO satellite networks, which are designed to ensure uninterrupted communication even under the most challenging conditions. The technology is especially valued for its low power consumption and strong performance in scenarios where GPS is unavailable and operations are contested.

Barry Hinckley, President of Red Cat's maritime division, Blue Ops, noted, "As uncrewed surface vessels take on more complex and distributed missions, reliable connectivity becomes a critical enabler for coordinated operations, including swarming and real-time data sharing. Integrating Kymeta's technology into our Variant 7 platform allows us to support these emerging capabilities and deliver USVs that can operate with greater range, coordination, and effectiveness in maritime environments. Multi-layered communication channels also ensure secure and resilient connectivity even with electronic warfare disruption."

This collaboration marks a significant step in leveraging cutting-edge technology to enhance the operational efficiency and capabilities of maritime drones in complex and demanding environments.

Earlier in May, Red Cat announced its financial results for the quarter ending March 31. The company witnessed a dramatic increase in its financial performance, reporting total revenue of US$15.5 million, which marks an 849% surge from the US$1.6 million recorded in the same quarter of the previous year. Gross profit for the quarter was US$2 million, and the gross margin significantly improved to 12.7%, up from a negative 52.1% in the corresponding quarter last year.

"We are projecting an exciting year, with increasing revenues (our target annual revenues in the short-medium term in between US$150 million to US$180 million), strong backlog, improving margins, and greater product diversity," Chief Executive Officer Jeff Thompson said.

Red Cat Holdings Inc. has been identified as one of the top nine drone stocks to invest in, as highlighted by Wall Street analysts and reported by Ashar Jawad for Insider Monkey on May 13. Following the release of its financial results, Needham & Co. analyst Austin Bohlig reaffirmed his Buy rating on RCAT on May 8, according to Jawad. Bohlig set a price target of US$20 per share, indicating a potential upside of 93% from the previous Friday's closing price. Earlier, on March 2, Bohlig had expressed optimism about Red Cat's growth prospects for 2026, noting that the company could benefit from over US$2 billion in available funding opportunities from the Department of War's programs.

In another analysis by Alex Sirois for 24/7 Wall St. on May 4, Red Cat Holdings was noted among several defense stocks priced under US$15 as promising investment opportunities. The company had reported a significant revenue increase for the fourth quarter of 2025, which was largely driven by a 520% expansion in manufacturing capabilities. This growth was substantially supported by contracts from the Pentagon and NATO for American drones, satellite platforms, and geospatial systems. Sirois also pointed out the strong bipartisan political support for defense spending, which is expected to continue into 2026, thereby boosting the attractiveness of these small-cap stocks.

On May 11, 2026, Think Equity analyst Dr. Ashok Kumar also commented on the company's prospects, noting its high growth and well-capitalized defense technology. In his report, Kumar assigned Red Cat a Buy rating with a target price of US$25, further underscoring the company's strong position in the market.

¹The ownership breakdown of Red Cat is 9.23% is held by insiders and management, 46.23% by 333 institutions, and the remainder by retail investors.

The largest shareholder overall is the CEO Thompson with 8.65%.

The company has 122.74 million shares outstanding, a market cap of US$1.3 billion, and a 52-week range of US$5.71 to US$18.78.