Barron's ran a piece this weekend that stopped me in my tracks.
The headline was about drone stocks, but buried inside was a line that tells a much bigger story. The Defense Autonomous Warfare Group (DAWG) - the Pentagon's drone initiative - is set to see its budget explode from $225 million in fiscal year 2026 to $55 billion in fiscal year 2027. That's not a typo. One year. $225 million to $55 billion.
And that's before President Trump's proposed $1.5 trillion defense budget for fiscal 2027 - up roughly 50% from this year.
The Iran war made this happen.
The $10,000 Drone That Changed Everything
What the conflict proved, painfully, is that America's ability to spend heavily on elaborate weapon systems no longer guarantees battlefield dominance.
Iranian Shahed drones costing $10,000 each managed to shut the Strait of Hormuz - the world's most important transit point for oil - while the U.S. fired hundreds of million-dollar interceptor missiles trying to stop them. The math on that exchange rate is brutal, and Washington knows it.
So the drone boom is real. The stocks are real.
AeroVironment (AVAV), Kratos (KTOS), Red Cat (RCAT), Swarmer (SWMR) - Barron's laid out the investment case for each of them, and it's compelling. If you want to own the companies building the weapons of postmodern warfare, there's a strong argument for several of them right now.
The Question Nobody Asked
What are all these drones actually made of?
Because when you answer that question, you find a second investment story hiding behind the first one - and it may be even bigger.
Every drone motor runs on rare earth magnets. A single multi-rotor UAV can use hundreds of them. The F-35 requires over 900 pounds of rare earth materials per aircraft.
The Pentagon's drone ambitions dwarf anything that came before, and the DoD projects that by 2030 its demand for specialized permanent magnets alone could reach approximately 10,000 tons per year.
Beyond the magnets, every drone requires lithium for batteries, aluminum for airframes, copper for wiring and electronics. These aren't optional ingredients - you cannot build a modern drone without them.
The Uncomfortable Truth About Supply
China refines over 85% of the world's rare earths and produces nearly 90% of high-performance rare earth magnets.
The same drones the Pentagon is betting the next decade of warfare on are almost entirely dependent on materials sourced from a strategic adversary. Earlier this year, reports surfaced that the U.S. had as little as 60 days of military rare earth supplies on hand.
When China imposed export controls on rare earth elements last year, defense suppliers reported sourcing slowdowns almost immediately. This isn't a theoretical risk sitting somewhere in the future. It's already playing out.
And it's not just drones and defense pulling on these materials. The AI infrastructure buildout needs them. The electrification of the grid needs them. The global reshoring push needs them.
A single hyperscale AI data center now consumes up to five times more copper than a conventional one.
Analysts at Bernstein project copper shortages stretching into the 2040s. Rare earth structural shortfalls could persist even longer. AI, defense, and the energy transition are all pulling on the same limited supply of critical metals at the same time - while new mines take 10 to 15 years to bring online.
That's what a commodity supercycle looks like in its early stages.
Join Me Live This Wednesday
This Wednesday at 5pm ET, I'm going live for a FREE event called "The Next Gold Rush: Why Copper, Rare Earths, and Mining Stocks Are the Biggest Opportunity Most Investors Are Ignoring."
I'll walk through exactly why I believe we're in the early innings of a commodity cycle unlike anything since China's rise in the early 2000s - and where I see the best opportunities to position ahead of the crowd.
Everyone who attends live will receive my Early Opportunities Watchlist - five stocks I'm watching right now across both the metals and AI infrastructure space. Live attendees only.
The drone boom is real. But the smarter play might be owning the materials that every drone, every data center, and every defense system on the planet can't function without.
I'll see you Wednesday,
Matt McCall
Founder, NXT Wave Research
