Stocks of US drone makers AeroVironment (AVAV) and Kratos Defense & Security Solutions (KTOS) soared more than 10% on Friday following an unexpected announcement from US Defense Secretary Pete Hegseth, who unveiled a sweeping initiative to supercharge domestic drone production, as per a report.

What Led to the Sudden Spike in US Drone Maker Stocks?

In a video posted to social media platform X, Hegseth said he was “rescinding restrictive policies” on Pentagon purchases, which he explained would increase the domestic manufacturing base by producing thousands of US-made drones and prioritizing "buy American," and that service personnel would be armed with low-cost American-crafted drones, as reported by Investopedia.

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He also pointed out that senior officers had to "overcome bureaucratic risk aversion in budgeting, weaponeering, and training," as quoted in the report.

The US Defense Secretary even highlighted that while the US "adversaries have produced millions of cheap drones, before us, we were mired in bureaucratic red tape. Not anymore," as quoted by Investopedia in its report.

The latest order, announced by Hegseth, removed the previous DOD policies from 2021 and 2022 that restricted the US military from buying drones and components made by Chinese companies, reported Investors' Business Daily. The order also assigns to combat units authority to buy, test, and train with small UAS drones that comply with statutes, as per the report.

The announcement comes after the June 6 executive order of the White House that said to invest in drone technology and integrate it into the national airspace, according to Investors' Business Daily report.

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How Have Kratos Stock and AeroVironment Stock Performed in 2025?

The stock market responded swiftly as Kratos shares jumped 12%, reaching its highest price in 19 years, reported Investopedia. The KTOS stock has increased more than 75% so far this year, as reported by Investors' Business Daily. AeroVironment, which had recently stumbled after announcing a $1.35 billion stock and debt offering, rebounded with a 10% gain Friday morning, as per the report. The AVAV shares have increased almost 55% this year and is close to its record high of $295.90 on June 30, as reported by Investor's Business Daily.

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FAQs

Why did drone company stocks jump so much on Friday?
The US Defense Secretary announced a surprise overhaul of Pentagon drone policy, removing restrictions and signaling big purchases of American-made drones. Investors saw this as a major win for companies like Kratos and AeroVironment.

What exactly did Defense Secretary Pete Hegseth say?
He said he’s rolling back “restrictive policies” and pushing to rapidly produce thousands of affordable, US-made drones to arm service members and prioritise domestic manufacturers.