Battlefield Drones: Red Cat (RCAT) CEO on Defense Tech & Spending
The defense sector is seeing a boost with the U.S./Iran conflict, with well-established names like Lockheed Martin (LMT) and RTX (RTX) hitting all-time highs recently. However, the battlefield is changing, and upstart tech players like Red Cat (RCAT) are coming onto the scene. Red Cat’s CEO, Jeff Thompson, joined Trading 360 to discuss drone making & AI.
Drones have become a critical part of war over the last few decades; the Russia/Ukraine war shows this dramatically – Thompson calls it “Drone War 1.” While the U.S. has expensive, state of the art drones like the Northrup-Grumman MQ-4C Triton, which can be the size of an airplane, smaller drones are beginning to flood the field.
These new drones are fairly cheap to build and have a variety of possible uses, between battlefield reconnaissance and dropping bombs. To some extent, they reduce risk to soldiers’ lives through remote operations and allow for more precise targeting. They can be small and difficult to counter, especially in large numbers. Drones are not just airborne, either: remotely controlled marine vehicles are also increasing in popularity.
Red Cat works in the smaller drone sector, offering several types but focusing on reconnaissance over payload. Their Black Widow drone, aimed at short-range reconnaissance, also includes AI meant for visual navigation, 3D mapping, and target recognition, per their site. To this end, they partner with Palantir (PLTR) and other major defense contractors, both for hardware and software.
The company is also expanding into the “maritime domain” with uncrewed surface vessels (USVs) through their Blue Ops subsidiary. Per their last earnings filing, 3Q25, they are working on adding weapons systems to the boats. They recently opened a 155K square foot facility in Georgia with manufacturing capacity of 500 vessels per year.
Over the past few years, Red Cat has inked multiple contracts with various arms of the U.S. government, to the tune of millions of dollars. Pressure from President Trump is pushing Europe to increase defense spending, potentially creating new opportunities. It also received a $518K order for 12 drones in January, per The Defense Post. Thompson expects further upside, citing the $1.5T U.S. defense budget, with potential opportunities to send drone escorts to the Strait of Hormuz, for example. “We’re going to have to maintain that strait for years to come,” he argues.
Thompson believes Red Cat is ahead of competitors because of its ability to scale. “Bring us that demand and we’ll ship it right away.” He notes that Russia, Ukraine, and China are able to produce around 4 million drones per year apiece and believes that the U.S. is trying to catch up as quickly as possible.
Reviewing their 3Q25 report, they listed revenue of $9.6 million, marking growth of 646% year-over-year and 200% vs the prior quarter. Unlike the same quarter last year, they posted a positive gross margin at 6.6% but had an operating margin of -181.7%, meaning the orders need to keep flowing. The Motley Fool notes that in late February, Red Cat shares fell along with rival defense company Kratos (KTOS), which announced plans to raise up to $1.4 billion in cash. The outlet argued that this could foreshadow Red Cat doing the same as it burns cash, or it could give Kratos the edge.
Wall Street seems positive on the stock, though: it’s up around 240% vs last year, and about 125% year-to-date. It saw another 17% surge in Friday’s trading. Analysts estimate the global military drone market could double or triple by the early 2030s, possibly to between $30-$40 billion.
Watch the full interview below:
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