Drone stocks weather Nasdaq slide; defense budget demand shelters them from AI hardware rout

Tuesday's market action drew a sharp line between revenue sources in aerospace: companies dependent on government procurement and defense budgets weathered the sell-off, while semiconductor and AI infrastructure stocks cratered. The iShares Semiconductor ETF fell roughly 5%, but the iShares U.S. Aerospace & Defense ETF gained 0.38%, reflecting investor rotation away from the hyperscaler AI capex trade and toward names with steady defense-budget backing. The FY 2027 President's Budget provided concrete evidence of that backing, explicitly carving out $20.6 billion for unmanned aircraft systems and counter-drone programs, plus $4.5 billion for autonomous systems development — a demand curve that does not depend on whether Alphabet, Meta, or Oracle builds another data center.

Within the drone sector, AeroVironment stood out as the vulnerable player, falling roughly 4% to around $174 on what appears to be profit-taking after a 27% run over the past month. Its largest market cap (roughly $9.76 billion) and highest institutional ownership (88.4%) made it more susceptible to broad risk-off flows and institutional trim orders. Red Cat and Ondas, by contrast, maintained momentum: Red Cat closed down just 2% despite the broader rout, supported by 527% year-over-year Q2 revenue growth and a reaffirmed FY26 target, while Ondas gained 1% even after an early post-earnings drop, suggesting sustained investor appetite for small-cap defense-linked growth.