In this article, we will take a look at the 6 Best Small-Cap Drone Stocks to Invest In.
The drone market in the U.S. has seen major developments, including some key legislative measures and executive directives. This is leading to an increase in investment and capital flow in the drone market. The directives include reshaping the procurement and manufacturing environment for drone companies and creating opportunities for local manufacturers.
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On June 6, the U.S. government issued an executive order, “Unleashing American Drone Dominance,” which prioritises the use of U.S.-made drones by all federal agencies. By increasing local production, it will arm combat units with a variety of low-cost American-crafted drones, leveraging world-leading engineers and AI experts.
Whereas, the recent DoD Procurement Directive will speed up purchase timelines and expand budgets, allowing military branches to rapidly deploy domestically manufactured drones. On top of that, the FY2025 National Defense Authorization Act (NDAA), tariffs, and grants are creating more opportunities for local manufacturers.
According to memos obtained by Fox News, the U.S. Secretary of Defense ordered fast-track drone production and deployment. The U.S. government is focused on increasing production to outpace Russia and China in unmanned warfare. Defense Secretary Pete Hegseth noted, “The Department’s bureaucratic gloves are coming off. Lethality will not be hindered by self-imposed restrictions… Our major risk is risk-avoidance.”
Hegseth also stated that small UAS are cheap, rapidly replaceable, and categorized as consumables. The government expects small drones to be fully integrated into combat training by 2026 and achieve domain dominance by 2027.
According to Fortune Business Insights, the military drone market size is projected to grow from $16.07 billion in 2024 to $47.16 billion by 2032, growing at a compound annual growth rate (CAGR) of $13.15%. Whereas, the global commercial drone market is expected to grow from $17.34 billion in 2025 to $65.25 billion in 2032, indicating a CAGR of 20.8%.
With these industry shifts in mind, let’s turn to the 6 Best Small-Cap Drone Stocks to Invest In.
A military drone hovering in the sky, demonstrating the AI capabilities of the company.
Our Methodology
To compile the list of 6 small-cap drone stocks to invest in, we shortlisted companies involved in drones with a market capitalization under $2 billion. We then ranked these best small-cap drone stocks in the ascending order of upside potential. We took the data for the upside potential from CNN. We also mentioned the number of hedge funds holding stakes in these stocks, and the data for hedge funds is taken from Insider Monkey’s Hedge Fund database, updated as of Q1 2025.
Note: The data was recorded on August 9.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
6 Best Small-Cap Drone Stocks to Invest In
6. Draganfly Inc. (NASDAQ:DPRO)
Market Capitalization: $93.48 Million
Analyst Upside: 30.65%
Number of Hedge Fund Holders: –
Draganfly Inc. (NASDAQ:DPRO) is one of the best small-cap drone stocks to invest in. On July 30, Draganfly Inc. (NASDAQ:DPRO) reported that it has sold its Heavy Lift Drones to a Fortune 50 telecommunications company.
After extensive testing, Draganfly completed the sale of its Heavy-Lift Drones to a Fortune 50 telecom firm for UAV-based emergency response and emergency communication capabilities. The company has sold its drones in partnership with Infinity Communications. The Heavy Lift drones will be deployed in disaster recovery operations to transport essential supplies and provide communications.
“Thanks to our work along with Draganfly, our Fortune 50 Customer will be able to benefit from the vital role UAV technology and automation can play in disaster response. By integrating Draganfly’s Heavy Lift drones into our deployment strategy, we demonstrated rapid, reliable delivery of life-saving equipment and swift restoration of communications in the most challenging conditions,” said Chris Coltrain, National Disaster Recovery Director at Infinity Communications.
Draganfly’s Heavy Lift drones are equipped with different remote sensors along with logistics and communications payloads. These capabilities make Heavy Lift drones an ideal tool for delivering critical supplies and restoring connectivity in areas affected by storms, infrastructure failure, or other emergencies.
Draganfly Inc. (NASDAQ:DPRO) is a leading drone solution and software provider that is transforming industries and serving stakeholders globally.
5. EHang Holdings Limited (NASDAQ:EH)
Market Capitalization: $1.28 Billion
Analyst Upside: 48.33%
Number of Hedge Fund Holders: 16
EHang Holdings Limited (NASDAQ:EH) is one of the best small-cap drone stocks to invest in. On August 1, EHang Holdings Limited (NASDAQ:EH) reported that its VT20 series logistics UAV has completed an intercity round-trip cargo delivery flight between Zhuhai and Guangzhou.
In a notable achievement, EHang’s VT20 series completed the cargo flight route in the Guangdong-Hong Kong-Macao Greater Bay Area. The one-way flight covered 83 km and took over 45 minutes to deliver the cargo. This development significantly improves logistics efficiency, saving up to 40 minutes between Zhuhai and Guangzhou compared to road transport.
“Our vision is to develop the Tangjiagang Port Model, the Wanshan Blueprint, and the Marine Demonstration Zone as benchmarks of China’s low-altitude economy—leveraging aerial innovation to create new productive forces for the blue economy,” Wei Liu, Senior Director at EHang.
Wanyi Tianxia Aviation operates the flight route between Zhuhai and Guangzhou, which is a joint venture by EHang, Zhuhai Wanshan Development Group, and Feixing Tianxia Technology. The strategic collaboration is to support UAV projects across the Wanshan Archipelago to build a ‘Tangjiagang Port Mode’ for the low-altitude economy.
EHang Holdings Limited (NASDAQ:EH) operates as an urban air mobility technology platform company. EHang designs, develops, manufactures, and operates UAVs, along with supporting systems and infrastructure for different industries and applications.
4. AIRO Group Holdings, Inc. (NASDAQ:AIRO)
Market Capitalization: $510.27 Million
Analyst Upside: 52.18%
Number of Hedge Fund Holders: –
AIRO Group Holdings, Inc. (NASDAQ:AIRO) is one of the best small-cap drone stocks to invest in. On July 22, AIRO Group Holdings, Inc. (NASDAQ:AIRO) announced the development of its new middle-mile cargo drone.
At the EAA AirVenture 2025 in Oshkosh, AIRO Group revealed that it is introducing a new drone that will be a medium-lift cargo drone. Moreover, the company announced the expansion of its operations into the YMX Innovation Zone in Mirabel, Quebec. AIRO Group’s electric mobility segment, Jaunt Air Mobility, and its Canadian subsidiary, Jaunt Air Mobility Canada, are leading this initiative.
AIRO Group’s new cargo drone is designed to carry around 250 to 500 pounds, covering distances of 200+ miles. This cargo drone will be an efficient, low-emission alternative to conventional middle-mile freight options such as box trucks and tractor-trailers. The drone will be equipped with a modular Ground Control System (GCS) that will provide real-time flight monitoring, dynamic mission planning, and secure communications management.
“We’re thrilled to unveil our cargo drone—an innovative solution designed to serve both remote and urban communities. Our work on the CORRIDAIR Project with our partner Vertiko Mobilité demonstrated the transformative potential of this technology, especially for First Nation communities in rural Quebec, where access to critical medical supplies and fuel is limited. Building on that success, and integrating advanced drone technologies from across AIRO, we believe that we’re uniquely positioned to harness the full capabilities of YMX’s infrastructure and ecosystem,” said Martin Peryea, SVP & GM of AIRO’s Electric Air Mobility segment and leader of Jaunt.
AIRO Group Holdings, Inc. (NASDAQ:AIRO) is an aerospace and defense company involved in manufacturing drones for different industries. The company operates through the following segments: Drones, Avionics, Training, and Electric Air Mobility.
3. Red Cat Holdings, Inc. (NASDAQ:RCAT)
Market Capitalization: $918.30 Million
Analyst Upside: 60%
Number of Hedge Fund Holders: 14
Red Cat Holdings, Inc. (NASDAQ:RCAT) is one of the best small-cap drone stocks to invest in. On August 4, Northland raised the price target on Red Cat Holdings, Inc. (NASDAQ:RCAT) stock from $13 to $15, keeping an Outperform rating.
Michael Latimore from Northland Securities increased the price target on RCAT following the company’s FY2025 results and notable opportunities ahead. The company posted revenue of $5.9 million for the full year 2025. The company reduced its operating expenses by almost 26% year-over-year in FY2025, driven by a streamlined team and increased operational efficiency. The company formed strategic distribution and integration alliances with Rehman International Group in the Middle East, Unique Group in the GCC region, Elektron SAS in Colombia, and Ocean Wave Solutions in South America. These collaborations expand Red Cat’s distribution presence in key regions across the world.
Latimore pointed out that Red Cat is much more comfortable with its expectations for rapid growth given recent government actions and filings. Moreover, the company held record backlogs of $7.6 million as of April 30, 2025, compared to $4.9 million as of April 30, 2024.
Red Cat Holdings, Inc. (NASDAQ:RCAT) is a Puerto Rico-based provider of products, services, and solutions to the drone industry. The company offers services to the enterprise, military, and consumer markets.
2. Unusual Machines, Inc. (NYSE:UMAC)
Market Capitalization: $305.60 Million
Analyst Upside: 77.25%
Number of Hedge Fund Holders: 2
Unusual Machines, Inc. (NYSE:UMAC) is one of the best small-cap drone stocks to invest in. On July 21, Unusual Machines, Inc. (NYSE:UMAC) announced that its Fat Shark Aura Video Transmitter (VTX) has been approved by the Defense Innovation Unit (DIU).
The DIU has approved Unusual Machines’ Fat Shark Aura VTX for inclusion in the Blue UAS Framework. The VTX becomes part of the growing list of Unusual Machines’ NDAA-compliant components already listed on the framework. After the approval of the company’s core FPV drone components, it is now positioned to support fully compliant FPV drones via direct offerings and collaboration with trusted partners.
“This milestone reflects our continued focus on building secure, trusted components for FPV drones that align with NDAA requirements. As defense procurement continues to shift toward secure, cost-effective solutions, we are positioned to meet the growing demand at scale and with trusted supply chain integrity. With this latest addition to the Blue Framework, we are proud that we can now offer complete NDAA-compliant configurations,” said Allan Evans, CEO of Unusual Machines.
The Fat Shark Aura VTX is a key tool purpose-built for FPV drone flight. It is optimized for low-latency analog video transmission. With the approval, it comes as a key addition to the Blue UAS Framework. This development also strengthens the company’s broader goal of diversifying in the drone supply chain.
Unusual Machines, Inc. (NYSE:UMAC) is engaged in manufacturing and selling drone components and drones. The company distributes its products via B2B sales, e-commerce, and retail channels.
1. Redwire Corporation (NYSE:RDW)
Market Capitalization: $1.28 Billion
Analyst Upside: 157.27%
Number of Hedge Fund Holders: 10
Redwire Corporation (NYSE:RDW) is one of the best small-cap drone stocks to invest in. On August 8, H.C. Wainwright lowered the price target on Redwire Corporation (NYSE:RDW) stock from $26 to $22, keeping its Buy rating.
Scott Buck from H.C. Wainwright downgraded the price target of RDW following challenging Q2 FY2025. The company posted revenue of $61.8 million, missing the estimates by $18.72 million. Redwire experienced a sequential decline in adjusted EBITDA, from a negative $2.3 million in Q1 to a negative $27.4 million in Q2, mainly affected by higher estimated costs on a single program. Moreover, the company also faced delays in the U.S. government budgeting processes, impacting revenue and pushing some awards into FY2026.
Buck has decreased 2026 estimates for Redwire; however, he recommends using the post-earnings selloff as a buying opportunity. Redwire’s subsidiary, Edge Autonomy, recently secured a prototype phase agreement by the U.S. Army to build and deliver its Stalker UAS for the Long Range Reconnaissance program.
Redwire Corporation (NYSE:RDW) is an integrated aerospace and defense company. The company is engaged in autonomous systems, including UAS, through Edge Autonomy.
While we acknowledge the potential of RDW to grow, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and have limited downside risk. If you are looking for an AI stock that is more promising than RDW and that has 100x upside potential, check out our report about this cheapest AI stock.
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