TLDR
- Global unmanned systems market expected to expand to $250 billion by 2035 from $40 billion in 2025
- Defense contractors transforming into technology companies through what Barclays terms “Physical AI”
- Six drone-focused companies identified by Needham & Company as positioned for significant gains during unmanned supercycle
- Featured companies span AeroVironment, Red Cat, Ondas, Draganfly, Amprius, and Unusual Machines
- Market expansion trajectory tied to AI infrastructure spending, energy resources, and critical mineral accessibility
The worldwide unmanned aerial systems market has experienced a twofold increase over the past five years, with industry analysts projecting the expansion has only begun. Recent analysis from Barclays values the current market at more than $40 billion in 2025, representing growth from approximately $20 billion in 2020, with forecasts indicating the sector will reach $250 billion by 2035.
Barclays characterizes this transformation as “Physical AI” — the convergence of artificial intelligence technologies with unmanned aerial platforms. This evolution is fundamentally altering the core business model of defense industry participants. Traditional hardware manufacturing has given way to software development, computational infrastructure, and autonomous decision-making capabilities.
According to Barclays research team, this transition positions drone manufacturers as technology enterprises rather than conventional defense suppliers. Investment requirements concentrate heavily on AI system development, while future expansion hinges on data center infrastructure, energy resources, and access to strategic minerals.
While individual drone units may carry price tags below $50,000, developing systems capable of deploying autonomous swarm configurations at meaningful scale demands substantial capital allocation. Analysts identify this infrastructure requirement as the primary market opportunity taking shape.
Within the broader technology landscape, drone capabilities now rank as the second-largest growth catalyst, trailing only autonomous vehicle development.
Stocks Needham Is Watching
Investment research firm Needham & Company published analysis identifying six companies positioned favorably within what the firm characterizes as an accelerating “unmanned supercycle.”
AeroVironment represents one of the sector’s most proven players in defense unmanned systems. The organization manufactures compact tactical drones, loitering munitions, and autonomous platforms deployed by U.S. military forces and allied nations. Needham anticipates sustained requirements for battlefield intelligence and strike capabilities will maintain the company’s central market position.
Red Cat specializes in military-specification drones engineered for intelligence, surveillance, and reconnaissance operations. The company has scaled production capacity as defense organizations accelerate procurement activities. Needham identifies significant opportunity if major military programs transition from evaluation phases into full-scale deployment.
Ondas operates across dual segments encompassing drone technology and wireless network infrastructure. The company’s platforms serve infrastructure monitoring, security applications, and counter-drone operations. Needham highlights escalating worldwide demand for counter-UAS capabilities as a primary growth catalyst.
Draganfly produces unmanned systems for defense, security, and public safety applications. The company is expanding manufacturing operations while pursuing North American government procurement opportunities. Needham views the company as positioned to capture value from the momentum toward domestic drone manufacturing.
Amprius pursues a distinct market angle. The company manufactures advanced lithium-ion batteries utilizing silicon anode technology, delivering superior energy density compared to conventional battery designs. For unmanned platforms, this translates to extended operational duration. Needham forecasts sustained requirements for enhanced battery technologies as unmanned system adoption accelerates.
Unusual Machines occupies a position within the manufacturing supply chain rather than producing complete platforms. The company provides components utilized in drone assembly. As government entities emphasize domestic sourcing requirements in defense programs, Needham anticipates the company stands to benefit across multiple platform categories.
What’s Driving the Growth
Barclays research identifies three limiting factors that will influence the pace of drone market expansion: artificial intelligence capital investment, energy infrastructure, and critical mineral supply chains.
Power demands for AI computational centers are substantial. Component requirements for specialized systems present similar challenges. These variables will likely determine how rapidly autonomous drone platforms can scale throughout the coming decade.
Government entities worldwide are expanding defense allocations while elevating autonomous systems as procurement priorities. This demand flows directly to the companies identified in Needham’s analysis.
AeroVironment and Red Cat operate at the mature end of the market spectrum, while organizations like Amprius and Unusual Machines represent the enabling infrastructure layer that facilitates drone deployment at scale.
While Needham’s published analysis did not include specific valuation targets, the firm views current market conditions as representing a structural growth inflection point for the unmanned systems industry.
